Neblett v. United States (In re AEH Trucking Co.)

• Decision Date: 29 June 2018
• Docket Number: Case Number: 1:16–bk–01608–RNO,Adversary Number: 1–17–ap–00042–RNO
• Citation: 586 B.R. 566
• Parties: IN RE: AEH TRUCKING CO., LLC, Debtor(s) John P. Neblett, Trustee for the Bankruptcy Estate of AEH Trucking, Inc., Plaintiff(s) v. United States of America, Defendant(s)
• Court: U.S. Bankruptcy Court — Middle District of Pennsylvania

586 B.R. 566

IN RE: AEH TRUCKING CO., LLC, Debtor(s)

John P. Neblett, Trustee for the Bankruptcy Estate of AEH Trucking, Inc., Plaintiff(s)

v.United States of America, Defendant(s)

Case Number: 1:16–bk–01608–RNO

Adversary Number: 1–17–ap–00042–RNO

United States Bankruptcy Court, M.D. Pennsylvania.

Signed June 29, 2018

John P. Neblett, Reedsville, PA, pro se.

Stephen Shuching Ho, U.S. Department of Justice, Tax Division, Washington, DC, for Defendant.

Nature of Proceeding: Motion for Summary Judgment

OPINION ¹

Robert N. Opel, II, Chief Bankruptcy Judge (BI)

Plaintiff, John P. Neblett ("Neblett"), Chapter 7 trustee for the bankruptcy estate of the Debtor, AEH Trucking LLC ("Debtor"), filed a three count Complaint against the United States of America, acting by and through the Internal Revenue Service ("IRS"). Neblett seeks the avoidance and recovery of alleged preferential transfers from the IRS. Alternatively, he seeks turnover of the funds seized and damages. Neblett filed a Motion for Summary Judgment ("Motion") as to Counts I and II and the IRS filed a Cross–Motion for Summary Judgment ("Cross–Motion"). Neblett's Motion as to Counts I and II is denied. The IRS's Cross–Motion is granted in part and denied in part as to Count I, and granted as to Count II. Neblett has withdrawn Count III, and it is therefore dismissed with prejudice.

I. Jurisdiction

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(E) and 157(b)(2)(F).

II. Facts and Procedural History

The Debtor filed a voluntary Chapter 7 petition on April 15, 2016. The Debtor owed funds to the IRS for outstanding employment tax liabilities in excess of $731,727.50. The IRS states that the Debtor owed employment taxes for the last three quarters of 2013 and the first two quarters of 2014. United States' Statement of Undisputed Material Facts ¶ 2, ECF No. 15–1. Neblett alleges that the IRS seized the Debtor's funds pre-petition during the preference period, and seeks to avoid and recover those funds.

Neblett states that the IRS made two seizures, on January 29, 2016 and February 26, 2016. Pl.'s Concise Statement of Material Facts ¶ 13, ECF No. 13–1. The IRS first seized funds from the Debtor's bank account at Orrstown Bank. On January 21, 2016, the IRS sent a Notice of Levy for $921,696.18 to the bank. Pl.'s Concise Statement of Material Facts ¶ 9, ECF No. 13–1. On February 26, 2016, the IRS received $1,403.86 from the bank which was applied to tax obligations for the period ending December 31, 2013. Pl.'s Concise Statement of Material Facts ¶ 11, ECF No. 13–1; United States' Statement of Undisputed Material Facts ¶ 8, ECF No. 15–1.

The IRS also seized funds from the Debtor's accounts receivable. The Debtor performed hauling contracts for the United States Postal Service ("USPS") and was owed a balance for accounts receivable due from USPS. The IRS levied against the Debtor's USPS account and recovered $731,727.50 on January 29, 2016. This amount was applied towards the employment taxes obligations for the periods ending June 30, 2013, through June 30, 2014. Pl.'s Concise Statement of Material Facts ¶ 8, ECF No. 13–1; United States' Statement of Undisputed Material Facts ¶ 5, ECF No. 15–1.

Count I of the Complaint requests avoidance and recovery of these seizures as preferential transfers pursuant to 11 U.S.C. §§ 547 and 550,² Count II alternatively demands turnover pursuant to § 542, and Count III demands damages pursuant to 26 U.S.C.S. § 7433. Neblett moved for summary judgment as to Counts I and II on March 14, 2018, and the IRS filed a Cross–Motion as to Counts I and II on March 15, 2018. Neblett's Motion states that he moves to dismiss Count III as discovery has failed to produce sufficient evidence. Mot. for Summ. J. ¶ 8, ECF No. 13. I will therefore dismiss Count III with prejudice and only consider the Motion and Cross–Motion as to Counts I and II. Briefs have been filed in support of, and in opposition to, the Motions. They are now ripe for decision.

III. Discussion

A. Standard to Decide a Motion for Summary Judgment Under F.R.B.P. 7056

Federal Rule of Bankruptcy Procedure 7056 makes Federal Rule of Civil Procedure 56 applicable in bankruptcy adversary proceedings. The movant has the initial burden of proving that there is no genuine dispute of material fact based on "depositions, documents, affidavits, stipulations, admissions, and interrogatory answers." In re Scalera , 2013 WL 5963554, at *1 (Bankr. W.D.Pa. 2013). A material fact is one which affects the outcome of the suit under substantive law. Anderson v. Liberty Lobby Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) ; Doe v. Luzerne County , 660 F.3d 169, 175 (3d Cir. 2011). Summary judgment is appropriate when there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law. Beard v. Banks , 548 U.S. 521, 529, 126 S.Ct. 2572, 2578, 165 L.Ed.2d 697 (2006) ; Celotex Corp. v. Catrett , 477 U.S. 317, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986) ; Rosen v. Bezner , 996 F.2d 1527, 1530 (3d Cir. 1993) ; In re Eury , 544 B.R. 563, 565 (Bankr. W.D.Pa. 2016). The court must view the facts in the light most favorable to the non-moving party and draw all inferences in that party's favor. Abramson v. William Paterson Coll. of N.J. , 260 F.3d 265, 276 (3d Cir. 2001) ; In re Eury , 544 B.R. 563, 566 (Bankr. W.D.Pa. 2016).

The standard does not change when parties file cross motions for summary judgment. Clevenger v. First Option Health Plan of N.J. , 208 F.Supp.2d 463, 468 (D.N.J. 2002) (citing Weissman v. U.S. Postal Serv. , 19 F.Supp.2d 254 (D.N.J. 1998) ). The court must consider the motions independently of one another and view the evidence on each motion "in the light most favorable to the party opposing the motion." Id. at 468–69 (citing Williams v. Phila. Hous. Auth. , 834 F.Supp. 794, 797 (E.D.Pa. 1993) ; Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) ).

Pursuant to Federal Rule of Evidence 201, a court may take judicial notice of facts that are not subject to reasonable dispute when they are generally known or capable of being accurately and readily determined by sources whose accuracy cannot reasonably be questioned. In re LandSource Communities Dev. LLC , 485 B.R. 310, 315–16 (Bankr. D.Del. 2013) (citing In re Indian Palms Assoc., Ltd. , 61 F.3d 197, 205 (3d Cir. 1995) ). Judicially noticed items may include the docket, claims register, and documents from the bankruptcy case. Id. I take judicial notice of the documents filed in the Debtor's bankruptcy case and in this Adversary Proceeding.

B. Count I—Avoidance and Recovery of Preferential Transfer Pursuant to 11 U.S.C. §§ 547 and 550

Neblett alleges that the seizures by the IRS constitute avoidable preferential transfers under 11 U.S.C. § 547 and may be recovered under § 550. Compl. ¶ 22, ECF No. 1. Section 547(b) provides that a trustee may avoid any transfer of the debtor's interest in property:

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made—

(A) on or within 90 days before the date of the filing of the petition; or

(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and

(5) that enables such creditor to receive more than such creditor would receive if—

(A) the case were a case under chapter 7 of this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to the extent provided by the provisions of this title.

Section § 550(a) further states that to the extent a transfer is avoided under § 547, the property transferred, or the value of such property, may be recovered from the transferee by the trustee for the benefit of the estate. The purpose of the preference rule is to "ensure that creditors are treated equitably, both by deterring the failing debtor from treating preferentially its most obstreperous or demanding creditors in an effort to stave off a hard ride into bankruptcy, and by discouraging the creditors from racing to dismember the debtor." In re Molded Acoustical Prod., Inc. , 18 F.3d 217, 219 (3d Cir. 1994).

The Complaint alleges that on or within 90 days before the filing of the Petition, the IRS seized cash from the Debtor's receivables and bank accounts and benefitted by receiving partial satisfaction of delinquent taxes, thereby satisfying the first and fourth required elements. Compl. ¶ 15–16, 19, ECF No. 1. Neblett also states that the seizures were made while the Debtor was insolvent for "an antecedent debt owed by the IRS before the [s]eizures were made," which enabled the IRS to receive more than it would have under the provisions of the Bankruptcy Code because tax liens are subordinate to administrative expenses and wage claims. Compl. ¶ 17–18, 20, ECF No. 1. Neblett argues that the seizures therefore constitute avoidable preferences under § 547(b).

The IRS denies that the "cash was for an antecedent debt owed by the IRS before the [s]eizures were made," and does not admit the other elements required under § 547 in its Answer. United States' Answer ¶ 17, ECF No. 5. I will first address the seizure of the bank account funds and then the seizure of the USPS account.

i. Bank Account Seizure

In its Cross–Motion for Summary Judgment, the IRS first argues that the $1,403.86 collected from the Debtor's bank account is well below the minimum threshold that is required for a claim under § 547(c)(9). United States' Br. In Support of its Cross–Motion for Summ. J. 5, ECF No. 15–2.

Section 547(c)(9) provides that:

(c) The trustee may not avoid under this section a transfer—

...

(9) if, in a case filed by a debtor whose debts are not primarily consumer debts, the aggregate value of all

...