Unroe, Matter of

• Decision Date: 15 July 1991
• Docket Number: No. 90-1523,90-1523
• Citation: 937 F.2d 346
• Parties: 25 Collier Bankr.Cas.2d 84, 20 Fed.R.Serv.3d 1026, 21 Bankr.Ct.Dec. 1462, Bankr. L. Rep. P 74,091 In the Matter of Mary Leasure UNROE, Debtor.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 346

937 F.2d 346

25 Collier Bankr.Cas.2d 84, 20 Fed.R.Serv.3d 1026,

21 Bankr.Ct.Dec. 1462, Bankr. L. Rep. P 74,091

In the Matter of Mary Leasure UNROE, Debtor.

No. 90-1523.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 10, 1991.

Decided July 15, 1991.

Deborah J. Daniels, U.S. Atty., Jeffrey L. Hunter, Asst. U.S. Atty., Indianapolis, Ind., Gary R. Allen, Gary D. Gray, Doris D. Coles, Joan I. Oppenheimer, Dept. of Justice, Tax Div., Appellate Section, Washington, D.C., E. Franklin Childress, Indianapolis, Ind., Thomas J. Clark, Dept. of Justice, Tax Div., Washington, D.C., Robert A. Brothers, Indianapolis, Ind., for appellee.

Judith E. Seubert, UAW Legal Services Plan, Indianapolis, Ind., Lynn M. Butcher, UAW Legal Services Plan, Anderson, Ind., for debtor-appellant.

Before CUDAHY and EASTERBROOK, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

CUDAHY, Circuit Judge.

In this Chapter 13 bankruptcy proceeding, the bankruptcy court approved a late-filed IRS proof of claim as an amendment to an earlier filed, timely claim. The district court affirmed. On appeal, Unroe argues that the second IRS claim does not relate back to the timely claim and that the district court abused its discretion in applying equitable principles to reach the same result.

I.

On July 18, 1986, Unroe filed for bankruptcy under Chapter 13. She filed her Statement and Plan on August 19, 1986, which included a $15,000 priority debt for 1982 and 1983 taxes. The plan listed the 1983 tax liability as a priority claim and the 1982 tax liability, along with interest and penalties for both tax years, as an unsecured claim, entitled to pro rata payment.

The IRS filed three proofs of claim. The first, filed September 25, 1986, was a priority claim for 1982 taxes ($105.58 and interest of $3,475.25) and a general claim for penalties ($3,969.42). The bar date for filing claims--January 6, 1987--passed, but on March 12, 1987, the IRS filed a second claim, styled an "amendment," which asserted a priority claim for 1985 taxes ($2,493.00 and $870.96 in interest). The IRS filed a second "amendment" on January 20, 1988, which corrected the date of the 1985 claim to 1983.

On April 30, 1987, the court without objection confirmed the plan, which provided priority status for 1983 taxes and general status for 1982 taxes and for all interest and penalties. On June 8, 1987, the trustee filed the claims application, which requested approval of the original and amended IRS claims. Unroe objected to the "amended" 1983 claim as untimely filed. Although the IRS proved that the mislabeled claim was actually for 1983, the record reveals no attempt by the IRS to explain or justify the tardiness of the 1983 claim.

The bankruptcy court overruled Unroe's objection. In re Unroe, 104 B.R. 77 (Bankr.S.D.Ind.1989). It reasoned that the late-filed claim related back to the 1982 claim under the guidelines of Fed.R.Civ.P. 15(c). Invoking equitable principles, it also permitted the claims on the grounds that: (i) Unroe was not unfairly surprised by the amendment, since her schedules and her original plan included 1983 taxes; (ii) unsecured creditors would receive a "windfall" if the claim were not allowed; (iii) the government would be deprived of funds to which it would otherwise be entitled. The district court affirmed by order on February 2, 1990. Unroe v. United States, 119 B.R. 626 (S.D.Ind.1990). The sole issue on appeal is whether the bankruptcy court properly permitted the tardy 1983 claim.

II.

A. Appellate Jurisdiction

Bankruptcy appeals, like other appeals, normally require finality below. 28 U.S.C. Sec. 158(d) (1988). Finality in the bankruptcy context operates somewhat differently, In re Fox, 762 F.2d 54, 55-56 (7th Cir.1985), because of the potential finality of certain orders before the estate is closed. (Appeal from an interlocutory district court decision is provided by section 158(d) and is available only through district court certification under 28 U.S.C. Sec. 1292(b). In re Moens, 800 F.2d 173, 177 (7th Cir.1986). ¹ )

The briefs inadequately assessed finality, so we requested supplemental briefing with special attention to our analysis in In re Jartran, Inc., 886 F.2d 859 (7th Cir.1989). Jartran held not final an order denying a creditor's request for administrative priority and for dismissal of a second Chapter 11 petition. Finality was not present because "a considerable number of potential disputes between Jartran and [the creditor] remain[ed] unresolved" and because "[r]esolution of the claims [would have been] more than a mere 'ministerial' matter." 886 F.2d at 862. The appeal proceeded, but on an interlocutory basis.

Jartran is easily distinguished from this case. First, the IRS's claim has been "established," meeting the requirement for claim finality. See In re Fox, 762 F.2d at 55. The amount is not in dispute. In fact, the estate has already paid both the 1982 and 1983 claims. Second, it appears that except for this appeal, all matters in the bankruptcy court have concluded, leaving nothing for the court below but to enter Unroe's discharge and close the estate.

Unroe has brought a contempt proceeding in the bankruptcy court against the IRS. Apparently the IRS sought interception and offset of Unroe's 1989 tax overpayment to satisfy her 1983 liability, even though she had already paid the liability. There is no apparent reason that the outcome of the contempt proceeding will affect the IRS's 1983 claim or vice versa. Moreover, the contempt proceeding involves the ministerial task of collection of a claim, which does not destroy finality. Appellate review is therefore proper.

B. Filing of The IRS's Untimely Claim

Unroe argues that the claim should not be permitted because (i) it is barred by Bankr.R. 3002(c)'s ninety-day time limit; (ii) the bankruptcy and district courts misapplied the equitable factors of the Glamour Coat test; and (iii) it does not, in the words of Fed.R.Civ.P. 15(c), arise from the "same conduct, transaction or occurrence" as the timely 1982 claim. Because these arguments mix jurisdictional and substantive questions, we reframe the inquiry along these lines: whether the amendment is authorized by statute and rule; whether the bankruptcy court possesses equitable jurisdiction to extend the ninety-day deadline; and, if such jurisdiction exists, whether the bankruptcy court abused its discretion by permitting the extension.

1. Statutory Bases

In a Chapter 13 proceeding a creditor must file a proof of claim within ninety days of the first date set for the meeting of creditors. Bankr.R. 3002(c). The rule provides exceptions, but for those relevant here, the IRS must move for an extension within the permitted ninety days, which it did not do. Under Rule 3002(c), therefore, the IRS's claim was untimely.

Rule 3002(c), however, operates in conjunction with Bankr.R. 7015, which provides, in its entirety, "Rule 15 F.R.Civ.P. applies in adversary proceedings." ² A claims proceeding may not be an adversary proceeding, but Bankr.R. 9014 extends Bankr.R. 7015 to "contested matters," which include Unroe's disputed claim. The bankruptcy rules therefore provide that a creditor may amend a claim if it meets Fed.R.Civ.P. 15(c)'s standard of arising out of a timely filed claim's "conduct, transaction or occurrence."

Did the district court err in finding the requisite nexus between the 1982 and 1983 claims? We believe it did. The IRS's position would permit the Service to file a claim for one tax year, and then, after the bar date, "amend" by right the claim to include any number of additional tax years. This would defeat the bankruptcy law's purpose of affording the debtor, trustee and court timely notice of claims. Separate years imply separate tax claims under Bankr.R. 7015. Examples of amendments permitted under Bankr.R. 7015 would include correcting the amount of tax, penalties or interest claimed in a timely filed claim. Fed.R.Civ.P. 15(c) therefore does not rescue the tardy 1983 claim.

2. Equitable Bases

Bankr.R. 7015 is not, however, the only possible authority for amendment. Another potential basis is the bankruptcy court's broad equitable jurisdiction. Equity jurisdiction extends even to setting aside final confirmation of a plan. See In re Longardner & Assocs., Inc., 855 F.2d 455, 462 (7th Cir.1988), cert. denied, 489 U.S. 1015, 109 S.Ct. 1130, 103 L.Ed.2d 191 (1989). We find no case that specifically addresses the question of whether Bankr.R. 7015's amendment procedure precludes a judge from classifying a late-filed claim as an amendment on equitable principles. Bankruptcy courts appear split on the question. Compare In re Miller, 90 B.R. 317, 323 (Bankr.E.D.Tenn.1988) (must meet FRCP 15(c), despite ample notice to debtor), aff'd, 118 B.R. 76 (E.D.Tenn.1989), with In re Bajac Construction Co., 100 B.R. 524 (Bankr.E.D.Cal.1989) (relying on equities and applying broad "same generic origin" test). The question therefore is whether equity here trumps the time bar of Bankr.R. 3002(a), or whether the rule functions as a statute of limitations.

We think that Congress has supplied the answer. Unlike traditional equity jurisdiction, Congress has codified the equitable power of the bankruptcy courts:

The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude a court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent abuse of power.

11 U.S.C. Sec. 105(a) (1988). Generously read, the court's power to prevent "abuse of power" includes bending the time requirements for "raising of an issue." Equitable jurisdiction to permit amendments out-of-time does not conflict with, but rather fulfills, the statutory backdrop for...