Neely v. Trippon (In re Neely)

• Decision Date: 19 June 2013
• Docket Number: BANKRUPTCY No. 04-44898-H5-7,Adversary No. 11-03637,Civil Action No. 12-1008
• Court: U.S. District Court — Southern District of Texas
• Parties: In re: GEORGE R. NEELY, DEBTOR. GEORGE R. NEELY, and CINDY NEELY, Appellants, v. JAMES M. TRIPPON, and J.M. TRIPPON & CO., C.P.A., Appellees.

IN RE: GEORGE R. NEELY, DEBTOR.

GEORGE R. NEELY, and CINDY NEELY, Appellants,

v.JAMES M. TRIPPON, and J.M. TRIPPON & CO., C.P.A., Appellees.

BANKRUPTCY No. 04-44898-H5-7

Adversary No. 11-03637

Civil Action No. 12-1008

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

SIGNED: June 19, 2013

MEMORANDUM OPINION AND ORDER

Appellants, George R. Neely and Cindy Neely, appeal six orders of the Bankruptcy Court entered in Adversary No. 11-03637: (1) Order Denying Plaintiffs' Amended Motion to Remand entered on March 22, 2012; (2) Order denying Cindy D. Neely's Notice ofDismissal under FRCP 41(a) entered on March 22, 2012; (3) Order denying George R. Neely's Notice of Dismissal under FRCP 41(a) entered on March 22, 2012; (4) Order Denying Plaintiffs' Motions to Dismiss and Granting Defendants' Motion to Dismiss entered on March 22, 2012; (5) Order sanctioning appellants entered on August 29, 2012; and (6) the Final Judgment entered on September 6, 2012.¹ Pending before the court are Appellees James M. Trippon and J.M. Trippon & Company, CPA's Motion to Dismiss Appeal (Docket Entry No. 2), Amended Brief for Appellants (Docket Entry No. 27), and Brief for Appellees James M. Trippon and J.M. Trippon & Co., C.P.A., (Docket Entry No. 29).² For the reasons explained below, the Bankruptcy Court's Orders and Final Judgment entered in Adversary No. 11-03637 will be affirmed, and Appellees James M. Trippon and J.M. Trippon & Company, CPA's Motion to Dismiss Appeal (Docket Entry No. 2) will be denied as moot.

I. Factual and Procedural Background

James Trippon and his company, Trippon & Company (collectively "Trippon") performed tax accounting services for George R. Neely (Neely) from approximately 1990 to approximately 2004, and for Cindy D. Neely from approximately 1998 when she married George to approximately 2004.³ On October 19, 2004, Neely filed a voluntary petition under Chapter 7 of the Bankruptcy Code, Case No. 04-44898.

On October 14, 2005, the Internal Revenue Service (IRS) filed a Proof of Claim in the amount of $343,193.98 in Neely's bankruptcy.⁴ Attached to the Proof of Claim was a schedule of the tax deficiencies and the dates the taxes were assessed.⁵

On October 10, 2008, the Bankruptcy Court denied George Neely a discharge under 11 U.S.C. § 727, after ordering that "the judgments in favor of the Commission for Lawyer Discipline against George R. Neely are not discharged pursuant to 11 U.S.C. § 532 (a)(7)."⁶

On November 21, 2008, George Neely sued the IRS in Adversary Number 08-03456 styled George Nelly v. Internal Revenue Service,("IRS Litigation") seeking declaratory judgment that tax liabilities that he had scheduled in a previous bankruptcy filed in Victoria, Texas, in 1996, (Bankruptcy No. 96-20413), had been discharged.⁷ On July 30, 2009, the Bankruptcy Court granted the IRS's motion for summary judgment and held that tax liabilities for which the IRS had filed proof of claim in Neely's 2004 bankruptcy had not been discharged in Neely's 1996 bankruptcy:

The United States Motion for Summary Judgment is GRANTED. Plaintiff's Form 1040 income tax liabilities for tax years 1990-1997 and 2003, his Form 941 tax liabilities for the tax period ending September 30, 1996 through the period ending December 31, 1997, the period ending March 31, 1999 through the period ending December 31, 2001 and the periods ending June 30, 2002, September 30, 2002, September 30, 2003 and December 31, 2003 and plaintiff's Form 940 FUTA liabilities for the tax years ending December 31, 1998, December 31, 2000, December 31, 2001, December 31, 2003 and December 31, 2004 were not discharged in Bankruptcy No. 96-20413. Plaintiff's Motion for Summary Judgment is DENIED.⁸

On December 15, 2009, the District Court dismissed Neely's appeal of the Bankruptcy Court's grant of summary judgment to the IRS.⁹

On June 18, 2010, Neely sent Trippon a letter stating:

Please consider this as my demand that you submit my claim against you for malpractice to your E&O insurance carrier. My claim arises in connection with your preparation of several income tax returns and the filing of same and advising me and my bankruptcy attorney that the tax returns had been on file the required period of time so as to discharge the taxes, penalties and interest due in connection with the income tax returns in a Chapter 7 bankruptcy proceeding filed by me in Victoria, Texas in approximately 1997. For several years after the Chapter 7 Discharge order received by me from the Victoria Bankruptcy Court you continued to advise me in connection with my financial affairs that the income taxes scheduled in the 1997 bankruptcy case in Victoria, Texas, were no longer owed by me.

I again conferred with you in October of 2004 in connection with you and Bill Carr regarding my financial situation, at which time both you and he advised me to file another Chapter 7 Bankruptcy proceeding. I did so and eventually filed an adversary against the IRS to confirm the discharge of approximately $300,000.00 in taxes, penalty and interest for the years covered in the 1997 Victoria, Texas Bankruptcy proceeding. The Bankruptcy Court in Houston, Texas entered a Summary Judgment that the 1997 bankruptcy case filed by me in Victoria, Texas did not discharge the taxes, interest and penalties you were retained to handle because the income tax returns were not on file the required period of time to effect a discharge of the taxes, penalties and interest owed in connection therewith. I am enclosing a copy of the Summary Judgment for your edification. Instead, I now owe the taxes, penalties and interest that were not discharged as well as any penalty and interest owed thereon since the filing of the 1997 Victoria Bankruptcy proceeding.

I hereby demand that you submit my claim for $2,500,000.00 to your malpractice insurance carrier. But for your negligence in the handling of the Victoria Bankruptcy income tax matters, and your subsequent advice, I would not have needed to file the 2004 Bankruptcy proceeding as you and Bill Car advised me to do and would not have experienced the severe financial losses as a proximate result thereof. My wife, Cindy, may be sending you her own demand letter as a result ofher losses proximately caused by your negligence in the handling both of our affairs.¹⁰

On July 1, 2010, Richard White, an attorney hired by Trippon's insurer to represent Trippon and his company, sent a response to Neely's demand letter asserting, inter alia, that Neely's malpractice claims were not only time barred, but also assets of Neely's bankruptcy estate that Neely had not standing to bring.¹¹

On December 14, 2011, Appellants filed Cause No. 2011-75043 styled George D. Neely and Cindy Neely vs. James M. Trippon, J.M. Trippon & Co., CPA's and Bill Carr, in the 151st Judicial District Court of Harris County, Texas, (the "removed state court action") against Trippon, Trippon & Company, CPA's, and Bill Carr alleging claims for negligence arising from allegations that Appellees had committed accounting malpractice by giving them advice regarding the dischargeability of George's taxes in the 1996 bankruptcy.¹²

On December 20, 2011, citing 28 U.S.C. §§ 157(a), 1334(b), and 1452(a), Trippon removed Civil Action No. 2011-75043 from state court to the Bankruptcy Court administering Neely's Chapter 7 case asserting:

1. On October 19, 2004 the above named debtor, George R. Neely ("Neely") [filed] a petition seeking relief under Chapter 13 of the Bankruptcy Code. . . . The bankruptcy is still ongoing in the United States Bankruptcy Court for the Southern District of Texas, Houston Division.¹³

2. On December 14, 2011, Neely filed suit in the Cause No. 2011-75043; styled George R. Neely and Cindy D. Neely vs. James M. Trippon, J.M. Trippon & Company, C.P.A.'s and Bill Carr, in 15[l]st Judicial District Court of Harris County, Texas . . . alleging breach of fiduciary duty among other claims.¹⁴ Neely alleges actions taken by Defendants as Debtor's personal accountants caused he and his wife damages.

3. The State Court Lawsuit, including all claims and causes of action asserted therein, is a civil action other than a proceeding before the United States Tax Court; and it is not a civil action by a governmental unit to enforce such governmental unit's police or regulatory power. The State Court Lawsuit is a civil proceeding related to the Bankruptcy Case. All cause[s] of action alleged by Neely against Trippon occurred pre bankruptcy filing; therefore would be property of the Bankruptcy estate. Neely failed to list any of these claims in his bankruptcy schedules so they would be disclosed to the Chapter 7 Trustee. The Bankruptcy Court presiding over the Bankruptcy Case, pursuant to the general reference with respect to Title 11 cases in the Southern District of Texas and 28 U.S.C. § 157, has jurisdiction of each and every cause of action asserted in the State Court Action under 28 U.S.C. § 1334(b).

4. The State Court Lawsuit is, on its face, a core proceeding that deals with issues intrinsic to the bankruptcy. Neely alleges that Defendants actions in advising him on the timing of the filing of his bankruptcy caused him financial losses. These causes of action belong to the Chapter 7 Bankruptcy Trustee and not to Neely.

5. Upon removal, all such proceedings are core proceedings under 28 U.S.C. § 157(b)(2)(A), (B), (C), (E), and (O).¹⁵

On December 22, 2011, Appellants filed individual notices of dismissal pursuant to Federal Rule of Civil Procedure 41(a)(1).¹⁶

On January 6, 2012, Appellees moved the Bankruptcy Court to dismiss the claims asserted against them in the removed state court action based on arguments that the negligence claims belonged to Neely's bankruptcy estate, Appellants lacked standing to assert the negligence claims, and the negligence claims were time barred.¹⁷ Asserting that Neely had brought a frivolous pleading in state court merely to circumvent the jurisdiction of the...