U.S. Dep't of Treasury Alcohol & Tobacco Tax & Trade Bureau v. X-Treme Bullets, Inc. (In re X-Treme Bullets, Inc.)
| Decision Date | 31 July 2020 |
| Docket Number | Member Case: 3:20-cv-00117- MMD,Case No. 18-50609-BTB (Lead Case),Case No. 3:19-cv-00637-MMD,Member Case: 3:19-cv-667-MMD,Member Case: 3:19-cv-666-MMD |
| Court | U.S. District Court — District of Nevada |
| Parties | In re: X-TREME BULLETS, INC., Debtor. HOWELL MUNITIONS & TECHNOLOGY, INC., AMMO LOAD WORLDWIDE, INC., CLEARWATER BULLET, INC., HOWELL MACHINE, INC., FREEDOM MUNITIONS, LLC, LEWIS-CLARK AMMUNITION COMPONENTS, LLC, and COMPONENTS EXCHANGE, LLC, Jointly Administrated Debtors. UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY ALCOHOL AND TOBACCO TAX AND TRADE BUREAU, Appellant, v. X-TREME BULLETS, INC., AMMO LOAD WORLDWIDE, INC., CLEARWATER BULLET, INC., FREEDOM MUNITIONS, LLC, HOWELL MACHINE, INC., HOWELL MUNITIONS & TECHNOLOGY, INC., LEWIS-CLARK AMMUNITION COMPONENTS, LLC, COMPONENTS EXCHANGE, LLC, KASH CA, INC.; DAVID HOWELL, Z.B. N.A. dba ZIONS FIRST NATIONAL BANK, CFO SOLUTIONS, LLC dba ADVANCED CFO, Matthew McKinlay and Valerie Grindle, Appellees. |
Jointly Administered Under Bankruptcy.
Immediately before the Court is the fourth appeal from the United States Bankruptcy Court for the District of Nevada ("Bankruptcy Court") in this consolidated case. Appellant the United States of America, on behalf of the Department of the Treasury Alcohol and Tobacco Tax and Trade Bureau ("TTB"), challenges the Bankruptcy Court's order disallowing a claim TTB filed solely against one of several Debtors-Appellees—Howell Munitions & Technology, Inc. ("HMT")—in HMT's Chapter 11 case ("Disallowance Order"). (See Case No. 3:19-cv-00637-MMD (ECF Nos. 51 52, 61).) Because the Bankruptcy Court abused its discretion in rendering its ruling without sufficient findings, the Court will vacate the Disallowance Order and remand for further proceedings as noted herein.1
The following facts are not in dispute and are based on the records before the Court and the arguments presented at a hearing the Court held on July 9, 2020 ("Hearing").
This case concerns the Chapter 11 bankruptcy proceedings of X-Treme Bullets, Inc., Ammo Load Worldwide, Inc., Clearwater Bullet, Inc., Freedom Munitions, LLC, Howell Machine, Inc., HMT, Lewis-Clark Ammunition and Components, LLC and Components Exchange, LLC, the debtors and debtors-in-possession (collectively, "Debtors-Appellees"). Debtors-Appellees filed Chapter 11 petitions for relief in the Bankruptcy Court on June 8, 2018. (E.g., ECF No. 24-2 at 2.) Their Chapter 11 bankruptcies were jointly administered under Bankruptcy Case No. 3:18-bk-50609-BTB. (Id.) TTB has filed four appeals—Case Nos. 3:19-cv-00637-MMD, 3:19-cv-00666-MMD, 3:19-cv-00667-MMD, 3:20-cv-00117-MMD—concerning various orders the Bankruptcy
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///Court issued in the underlying bankruptcy proceedings.2 All four appeals have been consolidated under the lead case (Case No. 3:19-cv-00637-MMD).3
This Order addresses only the Disallowance Order related to the fourth appeal (ECF No. 62-2 at 432-35 (); 437-40 (order entered on the docket February 5, 2020))4. The Disallowance Order concerns a proof of claim ("POC") which was executed in HMT's Chapter 11 case—Claim 52-1 ("TTB Claim")—on December 3, 2018. (ECF No. 62-1 at 461-72.) The TTB Claim is based on a federal tax lien TTB has against a non-debtor affiliate of Debtors-Appellees, Twin River, which was filed in January 2017 ("Lien"). (Id.) The Lien arose from Twin River's failure to pay federal excise taxes, pursuant to 26 U.S. C. § 6201, for Twin River's manufacture of ammunition. (See ECF No. 62-1 at 465, 468.) The TTB Claim asserts against HMT an aggregate amount of approximately $12,183,415—about $5,079,998 secured and about $7,103,416 unsecured. (Id. at 462, 465, 468.)
Debtors-Appellees objected to the TTB Claim ("Objection"). (ECF No. 62-2 at 2-22.) The Bankruptcy Court sustained the Objection but made no oral ruling as to why it did so. (See id. at 399.) In the written Disallowance Order,5 the Bankruptcy Court made two particular findings that the parties indicated are at issue. First, the Bankruptcy Court found that "[t]he TTB Claim is not a prima facie valid claim in that it fails to allege facts sufficient
///to support a legal liability of HMT to the TTB." (ECF No. 62-2 at 434, 439.) Second, the Bankruptcy Court found that "TTB has failed to meet its evidentiary burden of demonstrating that the TTB Claim is valid." (Id.) The Bankruptcy Court additionally found that TTB "has no allowed secured claim against any Debtor pursuant to [§] 506 of the Bankruptcy Code." (Id. (emphasis added).)
TTB requests that this Court reverse the Bankruptcy Court's ruling disallowing the TTB Claim and require Debtors-Appellees to file an adversary proceeding if they wish to contest the extent and validity of the Lien. (E.g., ECF No. 61 at 29; ECF No. 69 at 19.)
This Court has jurisdiction to hear timely appeals from a judgment, order, or decree of the Bankruptcy Court under 28 U.S.C. § 158(a).
The Court reviews "the bankruptcy court's conclusions of law de novo and its findings of fact for clear error." In re Bonham, 229 F.3d 750, 762 (9th Cir. 2000). The Bankruptcy Court's factual findings are clearly erroneous only if the findings "leave the definite and firm conviction" that the Bankruptcy Court made a mistake. In re Rains, 428 F.3d 893, 900 (9th Cir. 2005). "A bankruptcy court abuses its discretion if it applies the law incorrectly or if it rests its decision on a clearly erroneous finding of a material fact." In re Brotby, 303 B.R. 177, 184 (B.A.P. 9th Cir. 2003). A bankruptcy court also abuses its discretion where "it applies the wrong legal standard, misapplies the correct legal standard, or if its factual findings are illogical, implausible, or without support in inferences that may be drawn from the facts in the record." In re Plyam, 530 B.R. 456, 461 (B.A.P. 9th Cir. 2015).
The Court may affirm the bankruptcy court's decision "on any ground fairly supported by the record." In re Warren, 568 F.3d 1113, 1116 (9th Cir. 2009).
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TTB first argues that the Bankruptcy Court erred in concluding that the TTB Claim is not valid. (ECF No. 61.) This argument is undergirded by TTB's contentions that: (1) the TTB Claim was prima facie valid; (2) Debtors-Appellees did not provide substantive evidence, beyond a declaration, to overcome its burden to rebut the presumption of validity; and (3) even if Debtors-Appellees did overcome their burden, TTB nonetheless produced sufficient evidence in response to Debtors-Appellees' Objection to show that HMT should be liable for the Lien. (ECF No. 61 at 9-19; ECF No. 69 at 12-14). TTB additionally argues that the Bankruptcy Court erred in finding that it had "no secured claim"—as opposed to its actual finding of "no allowed secured claim"—because it did not determine the relative priority of the Lien. (ECF No. 61 at 23-28.) TTB argues that such a determination requires an adversary proceeding. (Id.) TTB additionally contends an evidentiary hearing should have been conducted in light of Debtors-Appellees' denial that HMT was liable for the Lien. (Id. at 20-23.)
Debtors-Appellees counter, relevantly arguing that TTB failed to carry its burden to show that it had a valid claim against HMT and the TTB Claim is irreparably deficient. (ECF No. 66 at 22-32.) At the Hearing, Debtors-Appellees made clear their belief that this was the primary issue before the Court. Debtors-Appellees, whose proposed order the Bankruptcy Court adopted, essentially merges the Bankruptcy Court's two claim-validity findings noted above. They specifically contend that the Bankruptcy Court's finding that the TTB Claim was not prima facie valid is tantamount to its conclusion that TTB failed to meet its evidentiary burden. Debtors-Appellees insist that an evidentiary hearing was not required. (Id. at 32.) They additionally in gist argue that the Bankruptcy Court's ruling that TTB has "no allowed secured claim" is correct as a matter of law for various reasons. (Id.
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///at 32-41.) Further, they contend that the determination of "no allowed secured claim" was properly made without an adversary proceeding. (Id. at 41-45).7
The Court will initially address the Bankruptcy Court's two first findings which cumulatively concern the validity of the TTB Claim before addressing the third finding that TTB "has no allowed secured claim." The Court will then consider TTB's request that the Court require Debtors-Appellees to file an adversary proceeding and contention that an evidentiary hearing was warranted.
A consideration of the Bankruptcy Court's prima facie finding and its evidentiary conclusion, separately or merged, leads to the same ultimate conclusion—that the Bankruptcy Court abused its discretion by failing to make sufficient findings in sustaining the Objection to allow for review of its decision. See, e.g., In re Bencomo, No. ADV 13-01451-BR, 2015 WL 3451546, at *1 (B.A.P. 9th Cir. June 1, 2015) (); see also First Yorkshire Holdings, Inc. v. Pacifica L 22, LLC (In re First Yorkshire Holdings, Inc.), 470 B.R. 864, 870 (9th Cir. BAP 2012) (providing that a
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///judgment may be vacated and case remanded to the bankruptcy court to make the requisite findings).
Under Title 11 of the United States Code § 501 a creditor may present its claim against a debtor to the bankruptcy court by filing a POC. Lundell v. Anchor Const. Specialists, Inc., 223 F.3d 1035, 1039 (9th Cir. 2000) (citing 11 U.S.C. § 501). The burden of proof for such claims "rests on different parties at different times." In re Consol. Pioneer Mortg., 178 B.R. 222,...
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