Hardegger v. Clark , 403 P.3d 176 ( 2017 )

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ADVANCE SHEET HEADNOTE
October 2, 2017
2017 CO 96No. 16SC599, Hardegger v. Clark—Contribution—Bankruptcy Discharge—Tax
Withholding Liability—26 U.S.C. §6672(d).
This case requires the supreme court to determine when the right of contribution
provided in 26 U.S.C. § 6672(d) (2012) gives rise to a “claim” under the United States
Bankruptcy Code.
Applying the “conduct test,” under which a claim arises for bankruptcy
purposes at the time the debtor committed the conduct on which the claim is based, the
supreme court concludes that the petitioner’s claim for contribution arose when the
parties’ jointly owned company incurred federal tax withholding liability, rendering the
parties potentially responsible for that debt. Because this conduct occurred before the
respondents filed their bankruptcy petition, the court concludes that the petitioner’s
claim constituted a pre-petition debt that was subject to discharge.
Accordingly, the supreme court affirms the judgment of the court of appeals.
The Supreme Court of the State of Colorado
2 East 14th Avenue • Denver, Colorado 80203
2017 CO 96Supreme Court Case No. 16SC599
Certiorari to the Colorado Court of Appeals
Court of Appeals Case No. 15CA1370
Petitioner:
Ann Hardegger,
v.
Respondents:
Daniel Clark and Cheryl Clark.
Judgment Affirmed
en banc
October 2, 2017
Attorneys for Petitioner:
Rose Walker, L.L.P.
Paul M. Grant
Denver, Colorado
Attorneys for Respondents:
Boog & Cruser, P.C.
Victor F. Boog
Lakewood, Colorado
JUSTICE GABRIEL delivered the Opinion of the Court.
¶1 This case principally requires us to determine when the right of contribution
provided in 26 U.S.C. § 6672(d) (2012) gives rise to a “claim” under the United States
Bankruptcy Code. The petitioner, Ann Hardegger, filed a complaint in the district court
seeking contribution from the respondents, Daniel Clark and Cheryl Clark, for their
proportionate share of a payment she made to the Internal Revenue Service (“IRS”) in
full satisfaction of the parties’ joint and several tax liabilities. The district court found
the Clarks responsible for one-half of the IRS indebtedness and entered summary
judgment in Hardegger’s favor. A division of the court of appeals reversed, however,
concluding that Hardegger’s contribution claim constituted a pre-petition debt that had
been discharged in the Clarks’ bankruptcy case. Hardegger v. Clark, No. 15CA1370,
slip op. at 10 (Colo. App. May 26, 2016).
¶2 We granted certiorari and now affirm.1 Applying the “conduct test,” under
which a claim arises for bankruptcy purposes at the time the debtor committed the
1 Specifically, we granted certiorari to review the following issues:
1. Whether the court of appeals erred in concluding that a claim for
contribution pursuant to 26 U.S.C. § 6672(d) that accrued when the
petitioner paid a tax penalty under 26 U.S.C. § 6672(a) in December
2014 was a claim subject to administration in the respondents’
bankruptcy proceeding filed in October 2010.
2. Whether the court of appeals exceeded the scope of its review by
concluding that the petitioner’s claim for contribution pursuant to
26 U.S.C. § 6672(d) was discharged in the respondents’ bankruptcy
proceeding.
3. Whether the court of appeals mistakenly relied on the pre-petition
conduct of a non-debtor entity to conclude that the petitioner’s claim
for contribution pursuant to 26 U.S.C. § 6672(d) was a claim subject to
2
conduct on which the claim is based, we conclude that Hardegger’s claim for
contribution arose when the parties’ jointly owned company incurred federal tax
withholding liability between 2007 and 2009, rendering Hardegger and Clark
potentially responsible for that debt. Because this conduct occurred before the Clarks
filed their bankruptcy petition in 2010, we further conclude that Hardegger’s claim
constitutes a pre-petition debt that was subject to discharge.
I. Facts and Procedural History
¶3 The material facts in this case are undisputed. The parties are former co-owners
of C2H2, Inc. (“C2H2”), a traffic control company. Hardegger and Cheryl Clark each
owned a 26% share in C2H2, while Daniel Clark and Hardegger’s husband, Jeffrey
Hardegger, each owned a 24% share.
¶4 Beginning in 2007 and continuing through the first quarter of 2009, C2H2 failed
to remit to the IRS federal payroll taxes that had been withheld from its employees. As
a result, in November 2009, the IRS recorded a federal tax lien against C2H2.
¶5 Shortly thereafter, the Hardeggers filed a lawsuit against C2H2 and the Clarks
seeking, among other things, judicial dissolution of C2H2. In that lawsuit, the parties
stipulated to the appointment of a special master, and the special master determined
administration in the respondents’ bankruptcy proceeding filed in
October 2010.
In their answer brief, the Clarks also ask us to review, as an “additional issue on
appeal,” the district court’s determination that Daniel Clark is jointly and severally
liable on the contribution claim at issue in this case. The Clarks did not cross-petition
for a writ of certiorari, however, nor is the issue fairly comprised within the
above-listed issues. Accordingly, the Clarks’ contention is not properly before us, and
we do not consider it further. See C.A.R. 53(a)(1).
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that C2H2 was not viable and wound it down. In the course of this wind down, the
special master did not pay C2H2’s delinquent federal payroll taxes.
¶6 Later, in October 2010, the Clarks filed a joint voluntary Chapter 7 bankruptcy
petition and gave notice to their creditors, including the Hardeggers. The Hardeggers
apparently did not file a proof of claim in the bankruptcy proceeding, and the
bankruptcy court granted the Clarks a discharge on May 10, 2011.
¶7 Subsequently, the IRS conducted a trust fund investigation and determined that
Cheryl Clark and Ann Hardegger were “responsible persons” concerning C2H2’s
unpaid tax liability. The IRS thus recorded federal tax liens against both women for a
so-called “trust fund recovery penalty.”
¶8 In December 2014, Hardegger paid the total amount of the penalty, comprising
all of C2H2’s unpaid payroll taxes. She then filed a complaint in the district court
seeking contribution, pursuant to 26 U.S.C. § 6672(d), from the Clarks as other persons
purportedly liable for those taxes. The Clarks responded, arguing, as pertinent here,
that any obligation they might have had to Hardegger with respect to C2H2’s tax
liability had been discharged in their bankruptcy case.
¶9 Both parties moved for summary judgment, and the district court ultimately
granted Hardegger’s motion. In so ruling, the court found that (1) the Clarks were
responsible for 50% of the amount that Hardegger had paid to the IRS on C2H2’s behalf
and (2) Hardegger’s contribution claim did not “accrue” until 2014, “long after the
[Clarks’] debts were discharged in bankruptcy.”
4
¶10 For reasons largely not pertinent here, the Clarks subsequently filed a motion to
amend the judgment. Although the court ultimately denied that motion, in its order
doing so, the court clarified that
[t]he action giving rise to [Hardegger’s] claim for relief for contribution
did not occur (the court inarticulately used the word ‘accrue’ in its prior
order) until the [Clarks] failed to pay to [Hardegger] their share of the tax
obligation paid by [Hardegger] to the IRS (it did not occur prior to the
bankruptcy).
¶11 The Clarks appealed, and in an unpublished decision, a unanimous division of
the court of appeals reversed. Hardegger, slip op. at 1, 13. As pertinent here, the
division first determined that the district court had improperly focused on when
Hardegger’s cause of action accrued under 26 U.S.C. § 6672(d) (i.e., when she paid more
than her proportionate share of the unpaid federal taxes), rather than when the Clarks
committed the conduct on which Hardegger’s claim was based (i.e., when C2H2 and its
responsible officers did not remit federal withholding taxes, thereby incurring joint and
several liability under 26 U.S.C. § 6672(a)). Id. at 8–9. According to the division, the
latter, not the former, dictated when Hardegger’s claim arose for bankruptcy purposes,
and because the material conduct occurred pre-petition, the contribution claim
stemming from that conduct likewise arose pre-petition. Id. at 9–10. Then, apparently
having discerned no evidence suggesting that Hardegger’s claim may have been
nondischargeable, the division concluded that the claim had been discharged in the
Clarks’ Chapter 7 bankruptcy proceeding. Id. Accordingly, the division remanded the
case to the district court with orders to enter judgment in favor of the Clarks. Id.¶12 Hardegger then sought, and we granted, certiorari.
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II. Standard of Review
¶13 We review a grant of summary judgment de novo. Pulte Home Corp. v.
Countryside Cmty. Ass’n, 2016 CO 64, ¶ 22, 382 P.3d 821, 826. When, as here, the
material facts are undisputed, summary judgment is proper only when the pleadings
and supporting documents show that there is no genuine issue of material fact and that
the moving party is entitled to judgment as a matter of law. C.R.C.P. 56(c); Ryan Ranch
Cmty. Ass’n v. Kelley, 2016 CO 65, ¶ 23, 380 P.3d 137, 142. In determining whether
summary judgment is proper, a court grants the nonmoving party the benefit of all
favorable inferences that may reasonably be drawn from the undisputed facts and
resolves all doubts against the moving party. City of Longmont v. Colo. Oil & Gas
Ass’n, 2016 CO 29, ¶ 8, 369 P.3d 573, 577–78. In responding to a properly supported
summary judgment motion, however, the nonmoving party may not rest on mere
allegations or demands in its pleadings but must provide specific facts demonstrating a
genuine issue for trial. Id. at ¶ 8, 369 P.3d at 578.
III. Analysis
¶14 We begin by discussing when a claim arises under the Bankruptcy Code, as well
as the three primary approaches that have emerged for making such a determination,
namely, (1) the accrual test, (2) the conduct test, and (3) the alternatively described fair
contemplation, foreseeability, pre-petition relationship, or narrow conduct test. After
agreeing with the parties that the conduct test applies here, we analyze the contribution
claim at issue under that test. Finally, we consider Hardegger’s contention that the
division exceeded the scope of its review in this case.
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A. When a Claim Arises Under the Bankruptcy Code
¶15 Subject to certain statutory exceptions not pertinent here, a Chapter 7 discharge
discharges a debtor from all debts that arose before the date of the order for Chapter 7
relief. See 11 U.S.C. § 727(b) (2012). The Bankruptcy Code defines the term “debt” to
mean “liability on a claim.” 11 U.S.C. § 101(12) (2012). “Claim,” in turn, is broadly
defined to mean “right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured.” 11 U.S.C. § 101(5)(A). This expansive
definition is no accident. “In the case of a claim . . . , the legislative history shows that
Congress intended that all legal obligations of the debtor, no matter how remote or
contingent, will be able to be dealt with in bankruptcy. The Code contemplates the
broadest possible relief in the bankruptcy court.” Grady v. A.H. Robins Co., 839 F.2d
198, 202 (4th Cir. 1988); accord In re Parker, 313 F.3d 1267, 1269–70 (10th Cir. 2002).
¶16 Although the Code does not separately define “contingent claim,” courts have
described a “contingent debt” as one that the debtor will be called on to pay only upon
the occurrence or happening of an extrinsic event that will trigger the liability of the
debtor to the alleged creditor. See, e.g., In re City of Detroit, 548 B.R. 748, 762 (Bankr.
E.D. Mich. 2016). Thus, a right to payment that at the time of the bankruptcy filing is
not yet enforceable under non-bankruptcy law (e.g., a claim that has not yet accrued
under the rules ordinarily applicable to non-bankruptcy claims) may nonetheless
constitute a claim that is dischargeable in the bankruptcy case. See In re Huffy Corp.,
424 B.R. 295, 301 (Bankr. S.D. Ohio 2010); see also In re Fretter, Inc., No. 96-15177, 2000
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WL 1780256, at *3 (Bankr. N.D. Ohio Sept. 29, 2000) (“A claim does not arise
post-petition simply because the time for payment is triggered by an event that happens
after the filing of the petition. As a result, ‘it is possible that a right to payment that is
not yet enforceable at the time of filing [sic] of the petition under non-bankruptcy law,
may be defined as a claim within Section 101(5)(A) of the Bankruptcy Code.’”) (quoting
In re R.H. Macy & Co., 236 B.R. 583, 589 (Bankr. S.D.N.Y. 1999)); In re Edge, 60 B.R. 690,
701 (Bankr. M.D. Tenn. 1986) (“The policies that guide interpretation of the Bankruptcy
Code are served by the conclusion that a claim arises at the time of the negligent act,
notwithstanding that access to other courts or the running of a statute of limitation may
be timed from some other point in the relationship between tortfeasor and victim.”).
¶17 In determining whether a contingent debt constitutes a pre-petition claim,
finding that a claim arose “at the earliest point possible” will, in most circumstances,
“best serve the policy goals underlying the bankruptcy process.” Saint Catherine Hosp.
of Ind., LLC v. Ind. Family & Soc. Servs. Admin., 800 F.3d 312, 317 (7th Cir. 2015). This
rule, however, is not without limits:
The expansive definition of claim and its legislative history “surely points
us in a direction, but provides little indication of how far we should travel
[in delimiting a contingent claim].” After all, a contingent right to
payment is, by definition, a right to payment that, because it is contingent,
is not yet and may never be a right to payment. In the strangely
appropriate language of philosopher Martin Heidegger, it might be said to
exist somewhere on a continuum between being and nonbeing. At some
point on that continuum, a right to payment becomes so contingent that it
cannot fairly be deemed a right to payment at all.
In re CD Realty Partners, 205 B.R. 651, 656 (Bankr. D. Mass. 1997) (quoting In re
Chateaugay Corp., 944 F.2d 997, 1003 (2d Cir. 1991)).
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¶18 Attempts to define this point have yielded three primary approaches for
determining when a claim arises for bankruptcy purposes.
¶19 Under the “accrual test,” a claim arises only when a creditor’s cause of action
accrues under the pertinent non-bankruptcy law. See In re M. Frenville Co., 744 F.2d
332, 337 (3d Cir. 1984), overruled by In re Grossman’s Inc., 607 F.3d 114, 121 (3d Cir.
2010). In the years after it was first adopted in Frenville, the accrual test garnered
widespread criticism for not capturing the breadth of relief envisioned by the
Bankruptcy Code. See Grossman’s, 607 F.3d at 120–21 (discussing post-Frenville case
law and other authority). Frenville has since been overruled by the Third Circuit, see
id. at 121, and no court now appears to follow the Frenville approach, see In re
Andrews, 239 F.3d 708, 710 n.7 (5th Cir. 2001) (describing Frenville’s approach as
having been “universally rejected”).
¶20 Under the “conduct test,” a claim arises at the time of the debtor’s conduct that
gives rise to the claim, even if the actual injury or accrual of a cause of action does not
occur until after the bankruptcy filing. Huffy, 424 B.R. at 304. Applying this test, courts
have concluded that a claim arose under the Bankruptcy Code in a wide array of
circumstances in which the claim had not yet accrued under non-bankruptcy law. See,
e.g., Parker, 313 F.3d at 1270 (concluding that the claimant’s legal malpractice claim
arose on the date that the malpractice allegedly occurred, which was prior to the filing
of the debtor’s petition); In re Rainbows United, Inc., 547 B.R. 430, 432 (Bankr. D. Kan.
2016) (concluding that a corporate officer’s indemnity claim against the corporation to
recover the payroll taxes that she paid as a “responsible person” on the corporation’s
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behalf arose when, prior to the bankruptcy petition, the corporation failed to remit the
taxes at issue; even though the IRS did not assess the liability against the officer until
years later, federal law made it likely that she would be liable for the unpaid taxes when
the corporation did not remit them). Indeed, in some cases, courts have concluded that
a claim arose under the Bankruptcy Code even though the claimant’s injury did not
manifest itself until long after the bankruptcy proceeding had concluded. See, e.g.,
Grossman’s, 607 F.3d at 117, 125 (concluding that the claimant’s asbestos-related claims
arose for bankruptcy purposes at the time the claimant was exposed to the debtor’s
asbestos-containing product, even though she did not manifest symptoms of
asbestos-related illness until almost thirty years after the exposure and almost ten years
after the bankruptcy court had confirmed the debtor’s plan of reorganization).
¶21 Because the conduct test, unlike the accrual test, sweeps broadly enough to
capture contingent claims, it has been described as “the one more in tune with the plain
language and the policy underlying the Bankruptcy Code.” Parker, 313 F.3d at 1269.
At the same time, however, because its application may result in discharging creditors’
claims before they receive notice of the bankruptcy case or even have reason to know
that their claims exist, the conduct test has drawn criticism “for failing to address the
due process rights of creditors” in such cases. Huffy, 424 B.R. at 304.
¶22 To address these due process concerns, a third approach, described variously as
the “fair contemplation,” “foreseeability,” “pre-petition relationship,” or “narrow
conduct” test, has emerged. City of Detroit, 548 B.R. at 763. This approach considers
whether a pre-petition relationship such as a contract, exposure, impact, or privity
10
existed between the debtor and creditor such that a possible claim could be deemed to
have been within the fair contemplation of the creditor at the time the debtor’s petition
was filed. Id. Under this test, a claim is considered to have arisen pre-petition if the
creditor could have ascertained through the exercise of reasonable due diligence that it
had a claim at the time the petition was filed. Id. Courts have observed that this test
ameliorates the above-noted concern that a bankruptcy proceeding cannot identify and
afford due process to claimants with certain unmatured or contingent claims. See, e.g.,
Saint Catherine Hosp., 800 F.3d at 316.
¶23 The Clarks argue, and Hardegger concedes, that the conduct test is the applicable
test here. In light of the foregoing authority and the facts now before us (including the
fact that the Clarks notified Hardegger of their bankruptcy proceedings after C2H2 did
not remit the payroll taxes at issue, thus obviating any due process concern), we agree.2
Accordingly, we turn to the question of whether Hardegger’s contribution claim arose
pre- or post-petition.
B. Hardegger’s Contribution Claim
¶24 The Internal Revenue Code imposes joint and several liability on each person
who is responsible for collecting, accounting for, and paying over taxes and who
willfully fails to do so, and the Code further provides that each such “responsible
person” can be held liable for the total amount of taxes not paid. Quattrone
Accountants, Inc. v. IRS, 895 F.2d 921, 926 (3d Cir. 1990).
2We also note that the parties in this case had a pre-petition relationship. We express
no opinion, however, as to whether such a relationship is always required to establish a
“claim” under the Bankruptcy Code.
11
¶25 Specifically, 26 U.S.C. § 6672(a) provides, as pertinent here:
Any person required to collect, truthfully account for, and pay over any
tax imposed by this title who willfully fails to collect such tax, or
truthfully account for and pay over such tax, or willfully attempts in any
manner to evade or defeat any such tax or the payment thereof, shall, in
addition to other penalties provided by law, be liable to a penalty equal to
the total amount of the tax evaded, or not collected, or not accounted for
and paid over.
¶26 When more than one person is liable for the penalty due under § 6672(a),
26 U.S.C. § 6672(d) provides a right of contribution to each responsible person who pays
more than his or her proportionate share of that penalty:
If more than 1 person is liable for the penalty under subsection (a) with
respect to any tax, each person who paid such penalty shall be entitled to
recover from other persons who are liable for such penalty an amount
equal to the excess of the amount paid by such person over such person’s
proportionate share of the penalty.
¶27 By this provision’s plain language, a cause of action under § 6672(d) accrues only
after payment in excess of one’s proportionate share of the penalty due. Id.; see also
Happy v. McNeil, No. SA-14-CA-201, 2015 WL 502312, at *2 (W.D. Tex. Feb. 5, 2015) (“A
responsible person who is liable for the penalty cannot seek contribution until he has
paid his proportionate share of the penalty.”). Indeed, the parties do not appear to
dispute that Hardegger’s right to sue for contribution arose in 2014 when she paid the
entire penalty. As noted above, however, the conduct test dictates that a claim arises for
bankruptcy purposes not when it accrues or becomes actionable for non-bankruptcy
purposes but rather when the debtor’s conduct giving rise to the alleged liability occurs.
The question thus becomes: what conduct gave rise to Hardegger’s § 6672(d) claim?
12
¶28 On this point, we deem Ford v. Cicoletti, No. C-09-00573 RMW, 2010 WL 1838966(N.D. Cal. May 4, 2010), instructive. In Ford, the IRS made a tax assessment against the
parties after their jointly owned company did not collect and pay over certain taxes. Id.
at *1. The plaintiff paid some of the taxes due, and the parties then entered into an
indemnity agreement whereby the defendant agreed to indemnify and hold the plaintiff
harmless from any liability in excess of his one-half share. Id. The defendant
subsequently filed for Chapter 7 bankruptcy protection and received a discharge. Id.
Years later, the plaintiff paid the entire amount of unpaid taxes due plus all penalties
and interest and then sued the defendant for contribution pursuant to § 6672(d). Id.
¶29 In considering when this claim arose under the pre-petition relationship test, the
court observed that a claim arises for bankruptcy purposes when the contingent liability
is established (i.e., when a joint obligation arises, rather than when a co-obligor’s right
of contribution ripens or matures into an actionable claim). Id. at *4. Applying this
principle to the case before it, the court concluded that the plaintiff’s contribution claim
was a contingent claim that arose
when the tax debts arose and [the parties] were jointly and severally liable
to the applicable taxing authorities. At the time of [the defendant’s]
bankruptcy, [the plaintiff] possessed a contingent claim that would ripen
into an actionable claim against [the defendant] in the event that [the
plaintiff] paid more than his fair share of the debt. [The plaintiff’s] claims
against [the defendant] arose for bankruptcy purposes when the tax debt
arose, not when [the plaintiff] later paid more than his fair share of the
debts.
Id.
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¶30 The court further observed that the fact that the plaintiff did not necessarily
know that the defendant would file bankruptcy proceedings—or that, after the
defendant had obtained a discharge, the plaintiff would be required to pay the
defendant’s share of the unpaid taxes—did not remove his contribution claim from the
realm of the parties’ fair contemplation. Id. To the contrary, in the court’s view, the
parties incurred joint and several liability to the taxing authorities prior to the
defendant’s bankruptcy, and based on their presumed knowledge of the tax laws and
their entry into an indemnity agreement, “the possibility that one of them would fail to
pay his taxes was fairly within their contemplation.” Id. Accordingly, the court held
that the plaintiff’s contribution claim had been discharged in the defendant’s
bankruptcy. Id.
¶31 Here, although we acknowledge the factual distinctions between Ford and the
present case, similar legal reasoning compels the conclusion that Hardegger’s
contribution claim arose when C2H2 and its responsible officers (i.e., Hardegger and
Cheryl Clark) did not pay the federal withholding taxes at issue between 2007 and 2009.
¶32 Specifically, once C2H2 failed to remit its payroll taxes, by operation of law,
Hardegger and Clark incurred joint and several liability under § 6672. See id.; accord
Quattrone Accountants, 895 F.2d at 926; see also United States v. Edwards, 572 F. Supp.
1527, 1534 (D. Conn. 1983) (“The company’s liability for withholding taxes arises at the
moment the taxes are withheld from employee salaries; a contingent liability is
immediately created for the amount withheld. The person responsible for paying the
company’s withholding taxes is also contingently liable from that moment.”) (citation
14
omitted); cf. In re Serignese, 214 F. Supp. 917, 920 (D. Conn. 1963) (rejecting the view
that assessment of a penalty on the responsible person was a prerequisite to tax
liability), aff’d sub nom. Goring v. United States, 330 F.3d 960 (2d Cir. 1964).
¶33 And at the moment that Hardegger and Clark incurred such liability, Hardegger
held a contribution claim against Clark, contingent on whether Hardegger would
ultimately elect to pay more than her fair share of the tax debt. See Ford, 2010 WL
1838966, at *4; cf. Rainbows United, 547 B.R. at 438–39 (“From the moment [the
debtor-corporation] failed to remit the payroll taxes, [the claimant-officer] was in
jeopardy of being assessed a [tax penalty]. Whatever indemnification right she may
have had arose then, too. Even though the IRS did not assess the [penalty] against her
until after [the corporation’s] plan had been confirmed, she was in peril of it as early as
2007 and though her claim against [the corporation] may not have matured until she
learned of the assessment, that debt was certainly contingent from the moment [the
corporation] failed to pay the trust fund deposit, well before confirmation.”).
¶34 Accordingly, we conclude that Hardegger’s contribution claim arose for
bankruptcy purposes when C2H2 and its responsible officers incurred tax liability for
which Hardegger and Clark were jointly and severally responsible and that, therefore,
Hardegger’s contribution claim was a pre-petition claim.
¶35 For two reasons, we are not persuaded otherwise by Hardegger’s contention that
because an individual’s tax penalty liability is “separate and distinct” from a corporate
debtor’s liability, the conduct giving rise to Hardegger’s claim was the IRS’s penalty
assessment under § 6672(a).
15
¶36 First, Hardegger cites no authority, and we are aware of none, demarcating
§ 6672 liability in this way under the Bankruptcy Code. To the contrary, Hardegger’s
position appears to ignore longstanding precedent recognizing that § 6672 liabilities
become debts for bankruptcy purposes when the taxes are withheld and not remitted to
the IRS—not when a tax penalty is assessed. See IRS v. Lee, 184 B.R. 257, 262 (W.D. Va.
1995); Serignese, 214 F. Supp. at 920.
¶37 Second, as noted above, the conduct test focuses solely on the conduct of the
debtor. See Huffy, 424 B.R. at 304. Here, the Clarks’ only material conduct was their
failure to pay the taxes that were owed on behalf of C2H2, and it is this conduct that
underlies the parties’ joint and several liability and, ultimately, Hardegger’s
contribution claim. See 26 U.S.C. § 6672(a), (d); Quattrone Accountants, 895 F.2d at 926.
¶38 Because the Clarks’ pertinent conduct occurred prior to October 2010, we agree
with the division that Hardegger’s contribution claim arose pre-petition and,
consequently, was a “claim” that was subject to discharge in the Clarks’ bankruptcy
proceedings. We thus turn to the scope-of-review question raised by Hardegger.
C. Scope of Review
¶39 Based on her view that the division’s review was limited to whether the district
court had correctly concluded that the contribution claim was a post-petition debt,
Hardegger asserts that the division erred in further determining that her contribution
claim was discharged in the Clarks’ bankruptcy proceedings. We are not persuaded.
¶40 The Clarks first raised the issue of whether Hardegger’s claim was discharged in
their answer to Hardegger’s complaint. This issue was then re-raised and addressed in
16
no fewer than four motions filed in the district court. And on direct appeal in the court
of appeals, the Clarks listed as an issue for review “[w]hether the trial court erred as a
matter of law in concluding on summary judgment that Ann M. Hardegger’s claim for
contribution was not subject to the Clarks’ bankruptcy discharge on May 10, 2011,
because said claim did not accrue (or occur) until 2014.” (Emphasis added.)
Accordingly, Hardegger’s narrow characterization of the issue presented to the division
is belied by the record.
¶41 Nor are we swayed by Hardegger’s insistence that as a result of the division’s
decision, she is unable to seek a determination of nondischargeability in the bankruptcy
court. Hardegger elected to file her claim in state court, and in litigating that claim, she
chose to rely solely on the argument that her right to contribution arose post-petition.
Indeed, until she sought certiorari in this court, Hardegger does not appear to have
suggested that her claim (if deemed to have arisen pre-petition) might nonetheless be
excepted from discharge. Having not made this argument below, when the Clarks
unmistakably raised the dischargeability of her claim, Hardegger cannot do so now.
¶42 Accordingly, we perceive no error in the division’s conclusion that Hardegger’s
contribution claim was discharged.
III. Conclusion
¶43 For these reasons, we conclude that Hardegger’s contribution claim was a
pre-petition “claim” under the Bankruptcy Code and that the division correctly
concluded that this claim was discharged in the Clarks’ bankruptcy proceedings.
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¶44 Accordingly, we affirm the judgment of the court of appeals and remand this
case for further proceedings consistent with this opinion.
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