Matter of Summa T Corp., Intern.

• Citation: 73 BR 388
• Decision Date: 27 April 1987
• Docket Number: LR 82-1227,LR 81-1232,LR 82-1223,LR 82-1233,LR 82-1229,LR 82-1224 and LR 82-1226,LR 82-1237,LR 82-1230,Adv. No. 86-244.,LR 82-1228,LR 82-1231,LR 82-1234,LR 82-1238,Bankruptcy No. LR 82-1235
• Parties: In the Matter of SUMMA T CORP., INT'L, Summa T Realty, Inc., Diversified Financial Services Corp. of America, Summa Management Co., Summa T Mortgage Co., Inc., David R. Kane, Interglobal, Inc., Milligan Interiors, Inc., Realty Consultants, Inc., Diversified Financial Services Corp., Int'l, IEI Realty, Inc., Sidetrack, Inc., Campbell Management, Inc., Mid-America Properties, Inc. Charles Darwin DAVIDSON, trustee in bankruptcy, Plaintiff, v. UNITED STATES of America INTERNAL REVENUE SERVICE, Defendant.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Eastern District of Arkansas

73 B.R. 388 (1987)

In the Matter of SUMMA T CORP., INT'L, Summa T Realty, Inc., Diversified Financial Services Corp. of America, Summa Management Co., Summa T Mortgage Co., Inc., David R. Kane, Interglobal, Inc., Milligan Interiors, Inc., Realty Consultants, Inc., Diversified Financial Services Corp., Int'l, IEI Realty, Inc., Sidetrack, Inc., Campbell Management, Inc., Mid-America Properties, Inc.

Charles Darwin DAVIDSON, trustee in bankruptcy, Plaintiff, v. UNITED STATES of America INTERNAL REVENUE SERVICE, Defendant.

Bankruptcy Nos. LR 82-1235, LR 82-1237, LR 82-1231, LR 82-1230, LR 82-1223, LR 82-1238, LR 81-1232, LR 82-1227, LR 82-1234, LR 82-1233, LR 82-1229, LR 82-1228, LR 82-1224 and LR 82-1226, Adv. No. 86-244.

United States Bankruptcy Court, E.D. Arkansas, W.D.

April 27, 1987.

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Thomas H. McClain, Charles D. Davidson, Davidson Law Firm, Ltd., Little Rock, Ark., for plaintiff.

Richard F. Mitchell, Michael N. Wilcove, Tax Div., Dept. of Justice, Washington, D.C., for defendant.

MEMORANDUM OF FINDINGS OF FACT AND CONCLUSIONS OF LAW SUPPORTING FINAL JUDGMENT DENYING PLAINTIFF'S OBJECTIONS TO THE ALLOWANCE OF DEFENDANT'S CLAIMS

DENNIS J. STEWART, Chief Judge.

The plaintiff trustee in bankruptcy objects to the allowance of the various claims of the Internal Revenue Service against the above referenced bankruptcy estates. The processing of the objections in extensive pretrial and the trial of them by the bankruptcy court was characterized by a troubled procedural history. It was the intention of the court, an intention which was attempted to be effected by appropriate pretrial orders, that the extensive documentation which was certain to be adduced in support of the objections be made the subject of summaries within the contemplation of Rule 1006 of the Federal Rules of Evidence. It is the announced purpose of that rule, and it was the purpose of this court in invoking the rule, to simplify the evidence before the court and to reduce the volumes of evidence which the court must review before handing down its findings of fact and conclusions of law. "Rule 1006 is based on the common-law rule that a party may prove the contents of voluminous writings which cannot be examined in court without causing inconvenience and waste of time by presenting evidence of their contents in the form of . . . written . . . summaries . . ." 5 Weinstein's Evidence para. 1006(01), pp. 1006-2, 1006-3 (1983). "The admission of summaries of voluminous books, records, or documents offers the only practicable means of making their contents available to judge and jury." Id., p. 1006-2 (Emphasis added.). The method of summarization utilized in this action has delayed trial and decision, rather than promoted it. If summarization had been properly attempted and carried out, the action could have proceeded to trial on a set of summaries whereby the contents of the voluminous documents were refined and placed in juxtaposition to the principal legal decisions which would control the allowance or disallowance of the claims. If that optimum method of summarization had been followed — and the evidence which has been adduced fails to show any reason why it could not have been — then the court could have determined the amounts of each claim which were to be allowed simply by reference to the summary which related to each legal problem.¹

Further, under the circumstances of this case, it would have seemed advisable for the parties, in briefing the issue of sufficiency of the evidence and that of burden of proof, to summarize the evidence to which they were referring, rather than simply citing the authorities in a virtual vacuum as to their applications. This certainly would have foreshortened the process in which the court has had to involve itself since the conclusion of the trial of the issues in this proceeding. With little hope of making findings of fact which would be at once complete and yet restricted to the material issues, the court has taken it upon itself to wade through the virtual cascade of evidence which the parties insisted on adducing in addition to the summaries. Yet, the entire purpose of the presentation of summaries under Rule 1006 is frustrated when the underlying documents, as well as the summaries, are offered in evidence. "(W)e construe the rule as treating summaries as evidence under circumstances where, in the court's discretion, examination of the underlying documents in a trial setting cannot be done conveniently." United States v. Smyth, 556 F.2d 1179, 1184 (5th Cir.1977), cert. denied, 434 U.S. 862, 98 S.Ct. 190, 54 L.Ed.2d 135 (1977). "Whether or not the originals are introduced at the trial, the summaries may be relied upon as evidence-in-chief." 5 Weinstein's Evidence para. 1006(02), p. 1006-6 (1983).

Not to follow the rules which have been fixed by the Congress and the court system is to invite the result which has come to pass in this proceeding. Congeries of evidence were placed before the court and it became the office of the court to sift through the voluminous evidence before it to see if, perchance, any of the items involved gave rise to legal propositions briefed by the parties — or, more importantly, which of the legal propositions and principles advanced by the parties was applicable to the particular item of evidence. Needless to say, the process has consumed a considerable portion of the court's time since the conclusion of the trial several months ago. The parties may be dissatisfied with the delay which has ensued, but the court can only say that the manner in which the case was presented to it more than justifies the delay.

Burden of Proof and Sufficiency of the Evidence offered in Support of the Trustee's Objections to the claims

The trustee, in support of his several objections to the claims of the Internal Revenue Service, has offered a considerable body of evidence in the form of the testimony of David R. Kane, a debtor and also a principal or "insider" in the other cases, which seeks according to its tenor to supplement certain documents and thereby qualify them to be treated as deductions under the Internal Revenue Code. In the same category, generally speaking, falls the evidence submitted through the testimony of the accountant who reviewed the corporate records for the trustee and who seeks to embellish certain of the entries in those records in order to qualify for deductions under the Internal Revenue Code.

In the further treatment of this subject below, the court will make more precise findings respecting the credibility and probative value of this testimony. At the outset, however, it seems to be the position of the trustee that the court is foreclosed from making any finding as to the credibility of this evidence; that the evidence adduced constitutes "some evidence" in support of the objection to the claim; that "some evidence" is all that is necessary to rebut the prima facie evidentiary effect of the proofs of claim; that it then devolves upon the claimant Internal Revenue Service to prove its claim by a preponderance of evidence; and that the testimonial evidence above adverted to is uncontradicted. As the trustee states in his "reply brief" filed December 1, 1986:

"The IRS has done virtually nothing to substantiate its claim to over $1,000,000.00 which would otherwise be available for legitimate creditors. The testimony clearly indicates the erroneous and arbitrary nature of the IRS claims. Even where documentary evidence is somewhat lacking, the testimony by witnesses for the Trustee was credible and basically unrefuted. Disallowing deductions because there are no documents establishing the precise amount beyond any reasonable doubt ignores commonly-recognized business practice as well as the fact that proof may be established by credible oral testimony. Rev. Rule 54-195, 1954-1 CB 47."

Little doubt inheres in the proposition that "the allegations of a proof of claim are taken as true. If those allegations set forth all the necessary facts to establish a claim and are not self-contradictory, they prima facie establish the claim." 3 Collier on Bankruptcy para. 502.02, pp. 502-21, 502-22 (15th ed. 1987). It is also true that:

"Should objection be taken, the objector is then called upon to produce evidence and show facts tending to defeat the claim by probative force equal to that of the allegations of the proofs of claims themselves. But the ultimate burden of persuasion is always on the claimant . . . That proof must be by a preponderance of the evidence and it is for the bankruptcy judge to determine whether or not that has been achieved, with due regard being given to the probative value of the proof of claim itself."

Id., p. 502-22. (Emphasis added.) In determining whether the evidence adduced by a trustee in support of an objection is "equal to the allegations of the proofs of claims themselves," within the meaning of the foregoing passage, it must be observed that the proofs of claims themselves must be based upon credible evidence. See, e.g., 3 Collier on Bankruptcy para. 57.18(6), p. 300 (14th ed. 1977), to the following effect:

"Regarding the weight to be given to testimony of witnesses and other evidence, bankruptcy proceedings follow general principles. Bankruptcy is a peculiarly tempting and fertile ground for the operation of afterthoughts, and the financial impossibility of righting a wrong inflicted on other creditors by the allowance of and distribution on a fraudulent or unjust claim calls for a particularly close scrutiny of the evidence presented. There is nothing to prevent a bankruptcy court from disallowing a claim on the ground that the evidence produced is unworthy of belief or otherwise insufficient to satisfy the court of the existence of a just claim, even in complete absence of contradictory evidence. (Emphasis added.)

If the proof of claim itself is to be...