Orr, In re

• Decision Date: 12 July 1999
• Docket Number: No. 98-40170,98-40170
• Citation: 180 F.3d 656
• Parties: In the Matter of: John Davis ORR, Debtor. Internal Revenue Service, Appellee, v. John Davis Orr, Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 656

180 F.3d 656

In the Matter of: John Davis ORR, Debtor.

Internal Revenue Service, Appellee, v. John Davis Orr, Appellant.

No. 98-40170.

United States Court of Appeals, Fifth Circuit.

July 12, 1999.

John A. Dudeck, Jr., U.S. Department of Justice, Gary Dexter Gray, U.S. Department of Justice, Tax Division, Appellate Section, Washington, DC, for Appellee.

Ronald A. Simank, Laura Misner Baker, Schauer, Simank & Ledbetter, Corpus Christi, TX, for Appellant.

Appeal from the United States District Court for the Southern District of Texas.

Before SMITH, DeMOSS and STEWART, Circuit Judges.

DeMOSS, Circuit Judge:

A spendthrift trust beneficiary who extinguished personal federal tax liabilities through bankruptcy now appeals the determination by the district court that distributions from the trust are subject to a prebankruptcy federal tax lien until the tax liability is satisfied. The district court's order conclusively settles a discrete issue within the bankruptcy case, and is appealable pursuant to 28 U.S.C. § 158(d). We conclude that the federal tax lien on Orr's income distributions from this Texas spendthrift trust attached to future distributions at the time of the creation of the lien, and not as of the time each distribution was made. The lien thus predates and survives the bankruptcy. The judgment below is, therefore, affirmed.

I.

On April 24, 1965, Unis Chapman Eichelberger executed a document entitled "Unis Chapman Eichelberger Chapman Ranch Trusts" ("Trust Document"). Eichelberger's grandson, John Davis Orr, is the named principal beneficiary of the Unis Chapman Eichelberger Chapman Ranch Trust I ("Trust"), described in the Trust Document. The Trust provides that Orr, after reaching the age of thirty, shall receive "all of the net income of the trust ... distributed ... annually or at more frequent intervals." The Trust lasts for Orr's life and then terminates. Orr has limited testamentary power over the distribution of the Trust's property after his death, but if Orr does not exercise this power the property is distributed to Orr's then-living descendants, and if no such persons exist, to charity. The spendthrift provision reads as follows:

No trust assets or income shall be liable for the debts of any beneficiary, nor subject to seizure under any judicial writ or proceeding. No beneficiary shall have the power to give, grant, sell, assign, transfer, mortgage, pledge, encumber, or in any manner to anticipate or dispose of the interest in the trust estate or its income or to dispose of the interest in the trust estate or its income or to dispose of any trust property until it has been actually delivered to him in accordance with the terms hereof, except that the foregoing shall in no manner restrict the authority otherwise granted to any trustee who is a beneficiary to distribute the trust property as provided herein.

Despite the generous provisions made for him by his grandmother, Orr has encountered financial difficulties. He filed for bankruptcy relief under Chapter 7 on November 1, 1995, and received his discharge on May 21, 1996. He has received no distributions from the Trust since filing for bankruptcy relief. And, most pertinent to the present controversy, he had previously run afoul of the Internal Revenue Service by failing to pay income taxes.

Orr failed to file his federal income tax returns for 1984 through 1991. After examination, the IRS and Orr agreed to the amount of tax and signed a Form 4549-CG, Income Tax Examination Changes, consenting to assessment and collection on October 1, 1992. On October 26, 1992, the IRS assessed the taxes, penalties, and interest reflecting the consent. Despite notice and demand, Orr's federal income tax liabilities for the taxes assessed on October 26, 1992 (to the date of the bankruptcy petition) were as follows: Year

                                    Year          Amount
                                    1984        $160,062.08
                                    1985          63,126.91
                                    1986          88,018.08
                                    1987          79,723.98
                                    1988         141,729.83
                                    1989          29,435.00
                                    1990          45,436.27
                                    1991          23,842.35
                

Notices of federal tax liens were filed in the personal and real property records of Nueces County, Texas for the 1984 through 1991 income tax liabilities on January 11, 1993. Orr also owed federal income taxes on the date of petition for 1992 in the amount of $2.69. Notices of federal tax liens were filed in the personal and real property records of Nueces County for the 1992 income tax liability on December 28, 1993. At the times the notices of federal tax liens were filed, Orr was a resident of Nueces County.

Orr filed this adversary action to determine the answer to one stipulated issue: "Whether the Internal Revenue Service's Notices of Federal Tax Lien attached to any interest of Debtor in the Unis Chapman Eichelberger Chapman Ranch Trust I to secure the payment of Debtor's federal income tax liabilities for 1984 through 1992?" The parties agree that Orr can be granted a personal discharge from his federal tax liability for 1984 through 1991 pursuant to 11 U.S.C. § 727, but not for his liability for 1992. Furthermore, the parties stipulated that the federal tax liens attached to Orr's property or interests in property in existence at the time of his bankruptcy filing are not dischargeable as to the property to which they attached. There is no stipulation as to whether the federal tax liens attached or attaches to any of Orr's interest in the Trust or its assets, or that Orr has or had an interest in the Trust or its assets.

Orr prevailed in the bankruptcy court. The IRS appealed to the district court, which reversed the bankruptcy court. Orr now appeals the judgment of the district court.

II.

Counsel were instructed to brief the question of "[w]hether the order from which appeal is taken in the bankruptcy case is a final order for purposes of appeal." The parties agree that this Court may properly exercise its appellate jurisdiction, invoking the grant of jurisdiction in 28 U.S.C. § 158(d). That statute provides that "[t]he courts of appeals shall have jurisdiction of appeals from all final decisions, judgments, orders, and decrees entered under subsections (a) and (b) of this section." 28 U.S.C. § 158(d). Subsection (a) provides for the appellate jurisdiction of district courts over inter alia, "final judgments, orders, and decrees ... of bankruptcy judges." (Subsection (b), which is inapplicable in this case, pertains to the jurisdiction of bankruptcy appellate panels.)

Orr prevailed on his motion for summary judgment in the bankruptcy court, based on his contention that the tax liens do not attach to his post-discharge income distributions from the Trust. In the context of a bankruptcy proceeding, this grant of summary judgment qualified as a "final order" reviewable by the district court. This Court has explained:

A [bankruptcy] case need not be appealed as a "single judicial unit" at the end of the entire bankruptcy proceeding, but the order must constitute a " 'final determination of the rights of the parties to secure the relief they seek in this suit,' " or the order must dispose of a discrete dispute within the larger bankruptcy case for the order to be considered final.

Texas Extrusion Corp. v. Lockheed Corp. (In re Texas Extrusion Corp.), 844 F.2d 1142, 1155 (5th Cir.1988) (internal citations omitted). There is, therefore, a lower threshold for meeting the "final judgments, orders, and decrees" appealability standard under 28 U.S.C. § 158(a) than there is for the textually similar "final decisions" appealability standard under 28 U.S.C. § 1291. In this case, the decision of the bankruptcy court resolved all dispositive issues pertaining to the discrete dispute concerning the post-discharge viability of pre-discharge federal tax liens on Orr's interest in the Trust, and therefore was ripe for appeal to the district court.

Likewise, the district court's reversal of the bankruptcy court is reviewable by the court of appeals pursuant to 28 U.S.C. § 158(d). Review of "final decisions, judgments, orders, and decrees" under § 158(d) is more akin to review of "final decisions" under § 1291 in nonbankruptcy appeals, whereby "[a] decision is final when it 'ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.' " Briargrove Shopping Ctr. Joint Venture v. Pilgrim Enters., Inc., 170 F.3d 536, 539 (5th Cir.1999) (quoting Askanase v. Livingwell, Inc., 981 F.2d 807, 810 (5th Cir.1993) (quoting Coopers & Lybrand v. Livesay, 437 U.S. 463, 467, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978))). But even under § 158(d), "this court's determination of whether an order is final (and therefore appealable) is more liberal in the bankruptcy context" than under § 1291. See Lentino v. Cage (In re Lentino), No. 98-20626, 1999 WL 77140, at * 2 (5th Cir. Mar. 5, 1999) (summary calendar).

If this adversary proceeding stood alone as an independent case, it would be appealable even under the higher standard of § 1291. Now that the district court has overruled the bankruptcy court and ordered "that IRS' lien shall attach to all income distributions made to Orr from the spendthrift trust at issue," there is nothing left for the bankruptcy court to do. Hence, the matter is sufficiently "final" for appellate review.

III.

Orr is the beneficiary of a spendthrift trust. Texas law has historically respected the validity of spendthrift trusts. See, e.g., Caples v. Buell, 243 S.W. 1066 (Tex. Comm'n App.1922); see generally 72 Tex. Jur.3d Trusts §§ 37-42 (1990). The state specifically acknowledges the validity of spendthrift trusts by statute. See Tex. Prop.Code Ann. § 112.035 (Vernon 1995).

The creation of a trust involves the separation of legal and equitable ownership of property. The trustee is the legal owner of...