Matter of Huckabee Auto Co.
| Decision Date | 14 March 1984 |
| Docket Number | Bankruptcy No. 80-00151-Mac,80-00152-Mac. |
| Citation | 38 BR 188 |
| Parties | In the Matter of HUCKABEE AUTO COMPANY, Debtor. In Matter of HUCKABEE PROPERTIES, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Middle District of Georgia |
Joseph J. Burton, Jr., Swift, Currie, McGhee & Hiers, Atlanta, Ga., for debtors.
Victoria J. Sherlock, Atty., Tax Div., Dept. of Justice, Washington, D.C., Lillian Lockary, Asst. U.S. Atty., Macon, Ga., for I.R.S.
On February 8, 1980, Huckabee Auto Company and Huckabee Properties, Inc., Debtors, filed their petitions under Chapter 11 of the United States Bankruptcy Code. These cases were consolidated by the Court on April 21, 1981. On January 28, 1982, Debtors' Chapter 11 plan was confirmed by the Court.
On June 17, 1983, Debtors filed a "Proof of and Objection to Additional Claim of the Internal Revenue Service" pursuant to section 501(c) of the Bankruptcy Code.1 On July 14, 1983, Debtors filed an "Amendment to Proof of and Objection to Additional Claim of the Internal Revenue Service." In response to Debtors' proof of claim and objection, the Internal Revenue Service (IRS) filed its "Opposition to Claim Filed by Debtors on Behalf of Internal Revenue Service." The matter came on to be heard on August 22, 1983, at which time the Court heard evidence on the IRS's opposition to the Court's exercise of jurisdiction over the proof of claim and the objection filed by Debtors.
After reviewing the evidence and considering the arguments and briefs of counsel, the Court is of the opinion that it has jurisdiction over the claim and objection filed by Debtors. In support of its conclusion, the Court publishes the following findings of fact and conclusions of law.
At the time Debtors filed their Chapter 11 petitions, Debtors had not paid certain federal employment and withholding taxes for certain portions of 1980. The IRS submitted a proof of claim in the Huckabee Auto Company Chapter 11 case, which included a claim for the withholding and employment taxes.2 On January 28, 1982, the Court confirmed Debtors' third plan of reorganization, which provided for the full payment of all allowed claims of the IRS. The plan called for the payment of the section 507(a)(1)3 claim of the IRS in full upon the effective date of the plan. Under Debtors' plan, the section 507(a)(6)4 claim of the IRS is being paid over a sixty-month period. The evidence reveals that the section 507(a)(6) payments to the IRS are being made timely by Debtors.
By letters and IRS forms dated June 9, 1983, the IRS notified Mr. Leo B. Huckabee, Jr., chairman of the board of Debtor Huckabee Auto Company, and Mr. Leo B. Huckabee III, president of Debtor Huckabee Auto Company, of its intention to assess a 100 percent penalty in the amount of $19,771.04 against them for Debtors' unpaid employment and withholding tax liability for the first quarter of 1980.5
Mr. Leo B. Huckabee III testified that although his annual salary is $41,000.00, he would not be able to pay the penalty. He further testified he has no assets and that payment of the penalty would have to come from Debtors' funds. Mr. Leo B. Huckabee, Jr., testified that he could not pay the penalty from his $40,000.00 yearly salary, and that he has no assets to liquidate. He also testified that payment of the penalty would have to come from Debtors' funds. Both Mr. Leo B. Huckabee, Jr., and Mr. Leo B. Huckabee III testified that payment of the penalty by Debtors would impair Debtors' effort to implement their confirmed plan of reorganization, over which the Court has retained jurisdiction. The IRS presented no evidence to rebut this testimony.
The IRS has raised several objections to the Court's exercise of jurisdiction. The IRS first argues that this case does not present a within the meaning of U.S. Const., art. III, § 2 in that Debtors lack standing to challenge the personal assessments against their corporate officers. Standing to litigate is an aspect of the requirement. Flast v. Cohen, 392 U.S. 83, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968). Standing requires that the plaintiff allege "such a personal stake in the outcome of the controversy as to assure that concrete adverseness" will follow. Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 703, 7 L.Ed.2d 663 (1962). Generally, standing depends on the particular circumstances of a case. United States v. Federal Power Commission, 345 U.S. 153, 73 S.Ct. 609, 97 L.Ed. 918 (1953).
In Jon Co., Inc. v. United States (In re Jon Co., Inc.), 30 B.R. 831, 10 B.C.D. 1005 (D.Colo.1983), subsequent to the corporate debtor's petition under Chapter 11 of the Bankruptcy Code, the IRS sought to collect information from the debtor's bank to determine the feasibility of assessing a 100 percent penalty under 26 U.S.C.A. § 6672(a) against the officers of the debtor for willful failure to withhold taxes. The bankruptcy court enjoined the IRS, reasoning that the penalty would adversely affect the debtor's attempt to reorganize.
On appeal to the district court, the bankruptcy court's decision was affirmed. The district court rejected the contention of the IRS that the corporate debtor lacked standing to challenge the proposed assessment against its officers. The court found that the mere fact that "the debtor corporation incurs no harm from assessment and collection but rather is benefitted by a reduction of corporate liability" was not dispositive of the standing requirement. 10 B.C.D. at 1006. The relevant inquiry, held the court, was whether the corporate debtor's ability to reorganize would be affected by the assessment of the penalty.
In this case, Debtors would be adversely affected by the proposed 100 percent assessment against the Huckabees. Both Mr. Leo B. Huckabee, Jr., and Mr. Leo B. Huckabee III testified that they could not pay the penalty, and that payment would have to come from Debtors' funds. They further testified that payment from Debtors' funds would seriously impede Debtors' effort to implement their plan of reorganization. This testimony was not rebutted by the IRS. The corporate Debtors thus have a stake in the outcome, and the Court concludes that they have standing.
The IRS also objects to the statutory jurisdiction of this Court to hear this matter. Jurisdiction of the bankruptcy courts is defined in 28 U.S.C.A. § 1471 (West Supp.1983),6 which provides, in part:
Under 28 U.S.C.A. § 1471, "a broad range of questions . . . can be brought into a bankruptcy court because they are `related to cases under title 11'. . . ." Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 74, 102 S.Ct. 2858, 2873, 73 L.Ed.2d 598 (1982). Generally, 28 U.S.C.A. § 1471 confers jurisdiction to the bankruptcy court whenever the administration of the debtor's estate is affected. See Tidwell v. IKG Industries (In re Georgia Steel, Inc.), 38 B.R. 829 (Bkrtcy.M.D.Ga.1983); Old Orchard Investment Co. v. A.D.I. Distributors, 31 B.R. 599, 10 B.C.D. 1200 (D.C.W.D.Mich. 1983); Inland Transportation Co., Inc. v. Rebco Towing Co., Inc. (In re River Line, Inc.), 19 B.R. 158 (Bkrtcy.M.D.Tenn.1982); In re Major Dynamics, Inc., 14 B.R. 969, 8 B.C.D. 376, 5 C.B.C.2d 511 (Bkrtcy.S.D.Cal. 1981).
Section 505(a)(1) of the Bankruptcy Code, 11 U.S.C.A. § 505(a)(1) (West 1979), specifically vests the bankruptcy courts with jurisdiction to determine tax liabilities. That section provides:
Except as provided in paragraph (2) of this subsection, the court may determine the amount of legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction.
11 U.S.C.A. § 505(a)(1) (West 1979).
In Bostwick v. United States, 521 F.2d 741 (8th Cir.1975), the bankrupts filed a straight bankruptcy, and the IRS did not file a proof of claim for unpaid taxes owed by the bankrupts. Subsequent to their discharge, the bankrupts filed a complaint to determine the dischargeability of certain taxes, and the bankrupts sought to enjoin the IRS from collecting the taxes until the dischargeability of the taxes was determined. The bankruptcy court held that it had jurisdiction to determine whether the taxes were dischargeable and enjoined the collection of the taxes until the question of dischargeability was resolved. The bankruptcy court was affirmed by the United States District Court for the District of Nebraska.
On appeal, the Eighth Circuit affirmed the district court. The Eighth Circuit concluded that under section 2a(2A) of the Bankruptcy Act,7 the bankruptcy court had jurisdiction to hear the complaint. Also, in Becker's Motor Transportation, Inc. v. IRS, 632 F.2d 242 (3d Cir.1980), cert. denied, 450 U.S. 916, 101 S.Ct. 1358, 67 L.Ed.2d 341 (1981), the court held section 2a(2A) conferred upon the bankruptcy court the authority to reopen a bankrupt's closed estate for the purpose of adjudicating the bankrupt's personal liability for tax penalties.
The IRS argues that the Court lacks jurisdiction in that...
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