Thomas v. United States (In Re Thomas) , 223 F. App'x 310 ( 2007 )

United States Court of Appeals
Fifth Circuit
F I L E D
In the March 1, 2007
United States Court of Appeals Charles R. Fulbruge III
for the Fifth Circuit Clerk
_______________
m 06-20115
_______________
IN THE MATTER OF:
DONALD RAY THOMAS
AND
PAMELA JEAN PIPKINS-THOMAS,
Debtors.
DONALD RAY THOMAS
AND
PAMELA JEAN PIPKINS-THOMAS,
Appellants,
VERSUS
UNITED STATES OF AMERICA,
Appellee.
***************
_______________
m 06-20777
_______________
IN THE MATTER OF:
DONALD RAY THOMAS, SR.
AND
PAMELA JEAN PIPKINS-THOMAS,
Debtors.
DAVID W. BARRY, DONALD RAY THOMAS, SR.;
PAMELA JEAN PIPKINS-THOMAS,
Appellants,
VERSUS
UNITED STATES OF AMERICA INTERNAL REVENUE SERVICE;
UNITED STATES OF AMERICA,
Appellees.
_________________________
Appeals from the United States District Court
for the Southern District of Texas
m 4:05-CV-3322
__________________________
2
Before SMITH, BARKSDALE, and DENNIS, chapter 13 plan summary showing an IRS pri-
Circuit Judges. ority unsecured claim of $5,000 and providing
for payment of that amount to the IRS.
JERRY E. SMITH, Circuit Judge:*
On January 13, 2004, debtors’ chapter 13
Through these two consolidated appeals, plan was confirmed. The IRS was provided
chapter 13 debtors Donald Thomas and Pam- timely notice of all the proceedings, and an
ela Pipkins-Thomas challenge two district IRS representative was present at the confir-
court affirmances of bankruptcy court rulings mation hearing and did not object.1
allowing a late-filed IRS proof of claim as an
amendment to an earlier claim and vacating the On February 2, 2004, debtors filed a proof
confirmation of a chapter 13 plan. Their coun- of claim for $5,000 on behalf of the IRS. Bar-
sel throughout the bankruptcy process, David ry later admitted that he intentionally had
Barry, appeals the district court’s affirmance failed to list details about the claim so that it
of sanctions levied against him by the would appear ambiguous, intending to avoid
bankruptcy court. Because the district court disclosure of the tax period, time, and amount.
correctly dismissed debtors’ first appeal, and
the bankruptcy court did not abuse its dis- On December 21, 2004, months after the
cretion by vacating the plan or imposing sanc- deadline for filing government proofs of claim,
tions, we affirm. the IRS filed a proof of claim showing an un-
secured nonpriority claim of $5,524.47 and an
I. unsecured priority claim of $29,724.20.
In May 2003, the IRS informed debtors that Debtors filed an objection to the claim, alleg-
their 2001 tax return had been selected for au- ing that it had not been filed timely, and filed
dit. In September 2003, the IRS issued debt- an unopposed motion to sever the issue of the
ors a notice of deficiency for $27,109 in addi- timeliness of the IRS’s claims.
tional taxes and a $5,421.80 penalty; debtors
did not challenge this notice in Tax Court. On April 13, 2005, the bankruptcy court
granted the motion and ruled that the IRS’s
On October 1, 2003, debtors filed a chapter proof of claim was a valid amendment to
13 petition listing the IRS as a creditor. On debtors’ proof of claim filed on the IRS’s be-
October 20, 2003, debtors filed a sworn bank- half. The court noted that debtors’ proof of
ruptcy schedule listing a priority unsecured claim had intentionally made the tax claim am-
claim on behalf of the IRS for $20,000; the biguous, despite debtors’ knowledge of the
schedule did not indicate that the claim was source of the claim. The April order specified
disputed, liquidated, or contingent. On De- that it was a “final order on the severed matter
cember 16, 2003, debtors filed an amended
1
The IRS did not object at the confirmation
* hearing or in response to notices of the debtors’
Pursuant to 5TH CIR. R. 47.5, the court has
determined that this opinion should not be pub- filings. In a case without an admission of affirma-
lished and is not precedent except under the limited tive misrepresentation and fraud on the court, we
circumstances set forth in 5TH CIR. R. 47.5.4. might not be sympathetic to a creditor that sat on
its rights.
3
that is adjudicated by this order.” claim that the September order was entered
into only to have a final order from which to
On September 13, 2005, the bankruptcy appeal, that assertion is belied by the face of
court signed the parties’ “Agreed Order Deny- the order: There is no language suggesting
ing Debtors’ Objection to IRS Claim.” The that any rights were preserved for appeal or
order stated that “The IRS Proof of Claim that there is any remaining controversy. The
dated August 24, 2005, in the amount of debtors cite no cases in which courts have
$34,822.67 is correct and ALLOWED as filed heard appeals on the underlying merits of is-
. . . . Debtors’ objection to IRS Claim is DE- sues stipulated in agreed judgments, nor have
NIED.” This order is signed by Barry as debt- debtors explained how they are aggrieved by a
ors’ attorney and is marked “with permission” judgment to which they agreed as to sub-
and “[a]greed as to form and substance.” stance. Debtors are estopped from appealing
the September order.
Debtors appealed to the district court,
which dismissed the appeal with prejudice. Any claims the debtors may have had re-
Meanwhile, the bankruptcy court held hearings garding the April order have been rendered
to determine whether Barry and debtors had moot by the September order, which ratified
intentionally filed vague, misleading, and false the bankruptcy court’s April rulings. Because
documents. The court concluded that the the debtors have no right to appeal from an or-
bankruptcy schedules and proof of claim pre- der to which they agreed, the district court
sented intentionally false statements and were correctlydismissed their appeal with prejudice.
designed to mislead the court. The court va-
cated the plan confirmation and levied sanc- III.
tions on Barry. The district court affirmed Debtors appeal the bankruptcy court’s or-
both these decisions. der vacating the confirmed chapter 13 plan.
They argue that the court had no authority to
II. vacate the plan sua sponte 761 days after the
Debtors appeal the bankruptcy court’s deci- confirmation order was entered because, ac-
sion to allow the IRS’s late-filed proof of cording to the terms of the Bankruptcy Code,
claim as an amendment to the earlier proof of a confirmed chapter 13 plan can be revoked
claim filed by debtors. Although that order only if a party in interest makes a request with-
was entered on April 13, 2005, debtors did not in 180 days.3
file a notice of appeal until after they had
signed the September 13, 2005, Agreed Order.
2
(...continued)
A party cannot appeal a judgment to which cause.”).
he has consented.2 Although debtors now 3
The Bankruptcy Code provides a statutory
method of revoking a confirmation order in cases
of fraud:
2
Swift & Co. v. United States, 276 U.S. 311,
323-24 (1928) (“[A] decree, which appears by the On request of a party in interest at any time
record to have been rendered by consent is always within 180 days after the date of the entry of an
affirmed, without considering the merits of the order of confirmation under section 1325 of this
(continued...) (continued...)
4
“Bankruptcy Courts are courts of equity,” On review, we first reversed the lower court’s
Nikoloutsos v. Nikoloutsos (In re Nikoloutsos), findings that the proof of claim was not timely.
199 F.3d 233, 236 (5th Cir. 2000), and “a Nikoloutsos, 199 F.3d at 236. We then found
court of equity is enabled to frustrate fraud that the debtor had obtained a chapter 13 con-
and work complete justice.” Tex. Co. v. Mil- firmation through “a materially false
ler, 165 F.2d 111, 116 (5th Cir. 1947). The representation which was either known by him
Bankruptcy Code grants broad statutory pow- to be false or made with reckless disregard for
er to bankruptcy courts: the truth.” Id. at 238. We remanded with
instruction to the bankruptcy court to “vacate
The court may issue any order, process, its order confirming the chapter 13 plan.” Id.
or judgment that is necessary or appropri-
ate to carry out the provisions of this title. The facts of this case are strikingly similar
No provision of this title providing for the to those in Nikoloutsos. Debtors, through
raising of an issue by a party in interest their counsel, intentionally misrepresented
shall be construed to preclude the court their debt to the IRS in their chapter 13 filings
from, sua sponte, taking any action or mak- and, by their fraud, obtained a confirmed chap-
ing any determination necessary or appro- ter 13 plan. On these facts, it was well within
priate to enforce or implement court orders the equitable authority of the bankruptcy court
or rules, or to prevent an abuse of process. to vacate debtors’ confirmed chapter 13 plan,
just as we instructed in Nikoloutsos.
11 U.S.C. § 105(a). From the face of the stat-
ute, the fact that the Bankruptcy Code may al- Additionally, debtors cannot claim that the
low parties in interest to request revocation of vacatur of the plan has deprived them of any
a confirmed plan does not prevent the court right to which they are entitled.4 The bank-
from taking the action sua sponte. ruptcy court’s order provided the debtors an
opportunity to file an amended plan, and coun-
In Nikoloutsos, this court considered a case sel at argument admitted that a new chapter 13
in which a debtor owed a $800,000 personal plan has been confirmed with the sole
injury judgment that he did not appeal. He alteration that the entire debt to the IRS is in-
filed a chapter 13 petition despite the fact that cluded. Debtors have no right to the discharge
chapter 13 is not available to debtors with over of a debt that is included in their plan only
$250,000 in debts. See 11 U.S.C. § 109(e). through fraudulent and misleading filings with
He also listed his debt to the judgment creditor the bankruptcy court. That court need not aid
as zero. When the judgment creditor objected, and abet debtors’ fraud.
the bankruptcy and district courts found that
she had failed to file a timely proof of claim.
3 4
(...continued) See, e.g., Meyer v. Lenox (In re Lenox), 902
title, and after notice and a hearing, the court F.2d 737, 739-40 (9th Cir. 1990) (“[B]ankruptcy
may revoke such order if such order was pro- courts, as courts of equity, have the power to re-
cured by fraud. consider, modify or vacate their previous orders so
long as no intervening rights have become vested in
11 U.S.C. § 1330(a). reliance on the orders.”).
5
IV. See, e.g., 11 U.S.C. § 1325(a)(3). Barry
Barry appeals sanctions. We review the im- signed documents containing intentional mis-
position of sanctions under Federal Rule of representations in an attempt to abuse the
Bankruptcy Procedure 9011 for abuse of dis- bankruptcy process by discharging debts his
cretion. Krim v. First City Bancorporation clients could not challenge in good faith.
Inc. (In re First City Bancorporation Inc.), Strong sanctions are necessary to deter this
282 F.3d 864, 867 (5th Cir. 2002) (per cur- type of behavior.
iam).
The judgment of the district court, affirm-
The bankruptcy court found the following: ing the decisions of the bankruptcy court, is
AFFIRMED.
Because Counsel has prepared, signed, and
filed a false petition, an improper chapter
13 plan summary and chapter 13 plan, an
objection to claim and related memoranda
without factual or legal basis, and a proof
of claim and has advocated all of those for
improper purpose and knowing that they
were factually incorrect, the Court con-
cludes that counsel has violated FRBP
9011(b).
These are factual findings that we review for
clear error, and Barry has provided no basis
for disturbing them.
The bankruptcy court imposed three sanc-
tions. First, because Barry in open court twice
refused to recognize a duty of candor, the
court imposed ethics instruction. Second, be-
cause making a false representation in a bank-
ruptcy proceeding is a federal crime under 18
U.S.C. § 157(3), the court forwarded the
memorandum opinion to the appropriate Unit-
ed States Attorney. Third, under authority of
Canon 3(B)(3) of the Code of Conduct for
United States Judges, the court forwarded a
copy of the opinion to the State Bar of Texas.
Although these sanctions are strong, they
are not an abuse of discretion. Bankruptcy
courts are courts of equity and rely on the
good faith of parties to function efficiently.
6