Internal Revenue Svc v. Stern ( 1999 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 98-11250
_____________________
In The Matter Of: KENNETH WAYNE STERN,
Debtor.
_______________________________________
INTERNAL REVENUE SERVICE,
Appellee,
v.
KENNETH WAYNE STERN,
Appellant.
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
Docket No. 3:98-CV-1002-H
_________________________________________________________________
December 16, 1999
Before KING, Chief Judge, and POLITZ and STEWART, Circuit Judges.
PER CURIAM:*
Debtor-Appellant Kenneth Wayne Stern appeals from a district
court judgment reversing the bankruptcy court’s order disallowing
a portion of the Internal Revenue Service’s claims. The
64``29+87bankruptcy court determined that the IRS was not entitled
*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
to equitable tolling under 11 U.S.C. § 105(a) of time limitations
within 11 U.S.C. § 523(a)(1)(B)(ii). Because we find that the
bankruptcy court did not abuse its discretion in refusing to
toll, we reverse the district court’s judgment.
I. FACTUAL AND PROCEDURAL BACKGROUND
This case arises because Stern failed to timely pay income
taxes and also filed numerous bankruptcy petitions. His first
Chapter 13 petition was filed on January 11, 1991, and was
dismissed on July 31, 1991 because Stern missed several payments.
Amounts collected by the bankruptcy trustee were returned under
11 U.S.C. § 1326(a)(2). His second Chapter 13 petition was filed
on January 15, 1992. This case was dismissed on December 12,
1992 because Stern’s liabilities exceeded the $100,000 maximum
specified in 11 U.S.C. § 109(e). On August 24, 1992, while his
second Chapter 13 case was ongoing, Stern filed income tax
returns for the 1987, 1988, 1989, and 1990 tax years.
The IRS assessed Stern’s tax liabilities for 1989 and 1990
on February 22, 1993, and his tax liabilities for 1987 and 1988
on March 29, 1993. Collection efforts began on May 31, 1993,
with an agent being assigned in June of that year.
On February 28, 1994, Stern entered an installment agreement
with the IRS, under which he was to pay approximately $650 per
month. However, Stern stopped making payments after six months.
Stern filed a Chapter 7 bankruptcy petition on September 9, 1994.
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On January 10, 1995, he received a general discharge. The IRS
resumed its collection efforts on June 12, 1995.
In 1996, the IRS filed and later amended a proof of claim
for federal income taxes for the years 1987 to 1994. Stern
objected to liabilities for the 1987-1990 period, arguing that
these had been discharged on January 10, 1995. As of the date of
his Chapter 7 petition, Stern’s returns for the 1987-1990 period
had been filed for more than two years, see 11 U.S.C.
§ 523(a)(1)(B)(ii), taxes had been assessed for more than 240
days, see 11 U.S.C. § 507(a)(8)(A)(ii), and the last date for
filing a return without penalty was over three years before. See
11 U.S.C. § 507(a)(8)(A)(i).
Without tolling of the time limitations in § 507(a)(8), the
IRS would lose its priority. More detrimental to the IRS,
without tolling of the two-year limitation in § 523(a)(1)(B)(ii),
Stern’s tax debt would be discharged. After an evidentiary
hearing, the bankruptcy court held that the IRS was not entitled
to equitable tolling under 11 U.S.C. § 105(a) during Stern’s
prior bankruptcy cases because evidence did not support a finding
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of bad faith filings.1 Therefore, the IRS’ claims for the 1987-
1990 period were disallowed.
The district court, reversing the bankruptcy court, held in
a bench opinion that the equities supported the IRS’ position
that time restrictions in each of the relevant provisions should
be equitably tolled. The time during which the automatic stay
associated with each of Stern’s prior two bankruptcies was in
effect, as well as an additional six months after each stay was
lifted, were not to be counted in determining whether the time
limitations of § 523(a)(1)(B)(ii) or § 507(a)(8)(A)(i) had been
exceeded. As a result, tax liabilities for the 1987-1990 period
were not discharged in the debtor’s previous Chapter 7
bankruptcy.
II. ANALYSIS
Stern argues that the district court misinterpreted the
facts of the case and substituted its own interpretation of those
facts for that of the bankruptcy court, and that it improperly
1
Section 105(a) provides:
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 the 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 an abuse
of process.
11 U.S.C. § 105(a).
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applied our holding in Quenzer v. United States (In re Quenzer),
19 F.3d 163 (5th Cir. 1993). For these reasons, he argues, the
district court’s order should be reversed.
In reviewing the district court’s reversal of the bankruptcy
court’s order, we apply the same standards as are to be applied
by the district court. See Kennard v. MBank Waco, N.A. (In re
Kennard), 970 F.2d 1455 (5th Cir. 1992). Findings of fact are
reviewed under the clearly erroneous standard, and conclusions of
law are reviewed de novo. See Traina v. Whitney Nat’l Bank, 109
F.3d 244, 246 (5th Cir. 1997). We review the bankruptcy court’s
determination to employ or not to employ its § 105(a) powers
under an abuse of discretion standard. See In re Coastal Plains,
Inc., 179 F.3d 197, 204 (5th Cir. 1999). “The abuse-of-
discretion standard includes review to determine that the
discretion was not guided by erroneous legal conclusions.” Koon
v. United States, 518 U.S. 81, 100 (1996); see also Coastal
Plains, 179 F.3d at 205; Latvian Shipping Co. v. Baltic Shipping
Co., 99 F.3d 690, 692 (5th Cir.1996) (“We will not find an abuse
of discretion unless the . . . court’s factual findings are
clearly erroneous or incorrect legal standards were applied.”).
We have noted that “the powers granted by [§ 105(a)] must be
exercised in a manner that is consistent with the Bankruptcy
Code,” Chiasson v. J. Louis Matherne & Assocs. (In re Oxford
Management, Inc.), 4 F.3d 1329, 1334 (5th Cir. 1993), and that
the section “does not authorize the bankruptcy courts to create
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substantive rights that are otherwise unavailable under
applicable law, or constitute a roving commission to do equity.”
United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir. 1986)
(footnote omitted). Within these confines, the section allows
courts to issue orders, processes, or judgments they determine
are necessary or appropriate to carry out the provisions of the
Bankruptcy Code, and to “tak[e] any action or mak[e] any
determination necessary or appropriate to enforce or implement
court orders or rules, or to prevent an abuse of process.” 11
U.S.C. § 105(a).
Whether a court should invoke its equitable powers under
§ 105(a) is a matter of discretion. See Perkins Coie v. Sadkin
(In re Sadkin), 36 F.3d 473, 478-79 (5th Cir. 1994) (“Section
105(a) provides equitable powers for the bankruptcy court to use
at its discretion.”). In Quenzer, we noted that “[e]quitable
considerations are largely fact driven” and that “‘[t]he essence
of equity jurisdiction has been the power . . . to mould each
decree to the necessities of the particular case.’” 19 F.3d at
165 (quoting Hecht Co. v. Bowles, 321 U.S. 321, 329 (1944)
(Douglas, J.)). Since Quenzer was decided, courts have drawn on
this language and have considered the overall facts of the
particular case before them in their determinations of whether
time limitations within § 507(a)(8) should be tolled. See, e.g.,
Clark v. IRS (In re Clark), 184 B.R. 728 (Bankr. N.D. Tex. 1995);
Miller v. IRS (In re Miller), 199 B.R. 631 (Bankr. S.D. Tex.
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1996). At least one court has taken the same approach to its
assessment of whether § 105(a) should be used to toll limitations
within § 523(a)(1)(B)(ii), a section also at issue here. See
Hollowell v. IRS (In re Hollowell), 222 B.R. 790 (Bankr. N.D.
Miss. 1998). In each of these cases, the court found that the
circumstances warranted equitable tolling.
In this case, the bankruptcy court drew a different
conclusion: that the facts of the case before it did not warrant
use of its equitable powers under § 105(a). A thorough review of
the full record, applicable law, and the bankruptcy court’s
careful opinion leads us to conclude that it did not abuse its
discretion in deciding that the IRS had not met its burden of
showing that it was entitled to equitable tolling. The
bankruptcy court did not apply inappropriate legal standards in
determining whether to toll the time limitations within
§ 523(a)(1)(B)(ii). It clearly assessed a number of different
facts before making its determination. We see no reason to
conclude that its findings of fact are clearly erroneous. The
district court apparently viewed the facts differently, and
decided that the equities favored the IRS. This, however, is not
sufficient to reverse the bankruptcy court’s determination.
As a result, the district court’s judgment reversing the
bankruptcy court’s order is REVERSED, and the bankruptcy court’s
order is thereby REINSTATED.
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