Internal Revenue Service v. United States Bankruptcy Court for the Western District of Oklahoma

FILED
U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
NOT FOR PUBLICATION *
February 17, 2017
UNITED STATES BANKRUPTCY APPELLATE PANEL
Blaine F. Bates
OF THE TENTH CIRCUIT Clerk
_________________________________
IN RE DAVID E. TERRELL, BAP No. WO-16-007
Debtor.
__________________________________
DAVID E. TERRELL, Bankr. No. 10-16662
Adv. No. 15-01272
Plaintiff - Appellant, Chapter 7
v.
INTERNAL REVENUE SERVICE, OPINION
Defendant - Appellee.
_________________________________
Appeal from the United States Bankruptcy Court
for the District of Oklahoma Western
_________________________________
Submitted on the briefs. **
_________________________________
Before NUGENT, ROMERO, and MOSIER, Bankruptcy Judges.
_________________________________
*
This unpublished opinion may be cited for its persuasive value, but is not
precedential, except under the doctrines of law of the case, claim preclusion, and issue
preclusion. 10th Cir. BAP L.R. 8026-6.
**
The parties did not request oral argument, and after examining the briefs and
appellate record, the Court has determined unanimously that oral argument would not
materially assist in the determination of this appeal. See Fed. R. Bankr. P. 8019(b). The
case is therefore submitted without oral argument.
ROMERO, Bankruptcy Judge.
_________________________________
David Terrell appeals the bankruptcy court’s Order Granting United States’
Motion for Summary Judgment and Notice of Opportunity for Hearing (the “Summary
Judgment Order”), 1 determining that Terrell’s 1997 tax liability (the “Tax Liability”) was
nondischargeable pursuant to 11 U.S.C. § 523(a)(1) and granting summary judgment in
favor of the Internal Revenue Service (the “IRS”). 2 He challenges the bankruptcy court’s
application of collateral estoppel arising from his previous criminal conviction for tax
fraud and suggests that the bankruptcy court was required to determine the precise
amount of his past due tax liability in the adversary proceeding. Because he is mistaken
on both counts, we affirm.
I. FACTUAL AND PROCEDURAL HISTORY
In 2005, Terrell was charged with, and pleaded guilty to, willfully filing a false tax
return for the tax year 1997 (the “Criminal Case”). 3 In his Petition to Enter Plea of Guilty
(the “Plea Agreement”), 4 Terrell admitted: (1) he prepared and signed his 1997 income
tax return; (2) the return contained a written declaration that it was made under the
penalty of perjury; (3) he did not believe the tax return was true and correct as to all
1
Appellant’s App. at 147.
2
All future references to “Code,” “Section,” and “§” are to the Bankruptcy Code,
Title 11 of the United States Code, unless otherwise indicated.
3
Exhibit C, United States’ Answer in Appellant’s App. at 25.
4
Exhibit D, United States’ Answer in Appellant’s App. at 38.
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material matters; and (4) he acted willfully in filing the return. 5 Through the Plea
Agreement, Terrell specifically admitted he falsely reported his total income as $10,000
on his 1997 tax return despite the knowledge that his total income was in excess of
$130,000 for that tax year. 6 On July 5, 2005, in the Criminal Case, the district court
ordered that as a term of Terrell’s probation, he was to “comply with the [IRS] in the
compilation and payment of all federal income tax due and owing” and pay a penalty of
$16,422.00 in restitution. 7 Thereafter, on or around January 2, 2006, the IRS assessed
Terrell for federal income tax of $53,618.00 and interest of $63,815.80 for the 1997 tax
year. 8
On November 1, 2010, Terrell filed a voluntary petition for Chapter 7 bankruptcy.
The Notice of Meeting of Creditors included a statement that it was unnecessary for
creditors to file any claims at that time and if assets became available for distribution,
additional notice regarding the filing of claims would be issued. As a result, the IRS did
not file a proof of claim. Three months later, the Chapter 7 Trustee filed a “Chapter 7
Trustee’s Report of No Distribution,” 9 and on February 16, 2011, Terrell received a
5
Exhibit C, United States’ Answer at 2, in Appellant’s App. at 26.
6
Exhibit 9, United States’ Brief in Support of its Motion for Summary Judgment at
19, in Appellant’s App. at 142.
7
Exhibit 6, United States’ Brief in Support of its Motion for Summary Judgment at
3-4, in Appellant’s App. at 111-12.
8
Exhibit 1, United States’ Brief in Support of its Motion for Summary Judgment at
2, in Appellant’s App. at 77.
9
The Chapter 7 Trustee’s Report of No Distribution appears on January 31, 2011 as
an unnumbered docket entry on the bankruptcy court docket.
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discharge. On April 5, 2011, the bankruptcy court discharged the Chapter 7 Trustee and
closed the case. Over four years later, the bankruptcy court reopened Terrell’s case at his
request. 10
On November 3, 2015, Terrell filed this adversary proceeding. In his Complaint
(the “Complaint”), 11 he requested a determination that “any and all amounts the IRS
claims [he] still owes for the 1997 tax year have either been paid in full or discharged
pursuant to 11 U.S.C. § 523(a)(1)” (the “Adversary Proceeding”). 12 On January 20, 2016,
the IRS filed the United States’ Motion for Summary Judgment and Notice of
Opportunity for Hearing, 13 and the United States’ Brief in Support of its Motion for
Summary Judgment. 14 The IRS argued it was entitled to summary judgment because, as a
result of the Plea Agreement, “[t]he doctrine of collateral estoppel bar[red] Terrell from
disputing those facts material to judgment in [the Adversary Proceeding].” 15 On February
9, 2016, Terrell filed his response (the “Response”), arguing summary judgment was
10
Bankr. Dkt. Entry 27.
11
Appellant’s App. at 6.
12
Complaint at 2, in Appellant’s App. at 7.
13
Appellant’s App. at 55.
14
Appellant’s App. at 58.
15
The IRS specifically argued the facts and admissions underlying Terrell’s guilty
plea supported a finding that Terrell willfully evaded his income tax liabilities and,
accordingly, his Tax Liability was not dischargeable as a matter of law pursuant to
§ 523(a)(1)(C). United States’ Brief in Support of its Motion for Summary Judgment at 5,
in Appellant’s App. at 62.
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inappropriate because he was also requesting the bankruptcy court determine the amount
of the Tax Liability under § 505(a)(1) (the “Tax Determination Request”). 16
On March 21, 2016, the bankruptcy court entered the Summary Judgment Order
wherein it concluded the IRS was entitled to summary judgment finding: (1) Terrell
signed and filed his 1997 federal income tax return under penalty of perjury, reporting
$10,000 as his total income for that tax year when his income exceeded $130,000; (2)
Terrell was charged with, and pleaded guilty to, filing a false income tax return; (3) in the
Plea Agreement, Terrell admitted he acted willfully in filing the false tax return and he
signed and filed his 1997 tax return with knowledge the return was not true as to all
material matters; (4) Terrell admitted he knew his income was in excess of $130,000 and
he deliberately filed the incorrect tax return; and (5) he was “the only party against whom
the [judgment in the Criminal Case] was entered.” 17 The bankruptcy court held “a debtor
who has been criminally convicted for tax-related crimes may be collaterally estopped
from discharging his tax debt in bankruptcy for the subject years.” 18 Accordingly, the
bankruptcy court concluded the Tax Liability was nondischargeable under
§ 523(a)(1)(C). 19 Terrell now appeals the Summary Judgment Order.
16
Response at 4, in Appellee’s App. at 4.
17
Summary Judgment Order at 11-12, in Appellant’s App. at 157-58.
18
Id. at 7, in Appellant’s App. at 153 (citing Wilcoxson v. United States (In re
Wilcoxson), No. 97-14519, 2002 WL 127047, at *3-6 (Bankr. S.D. Ala. Jan. 2, 2002)).
19
Id. at 12, in Appellant’s App. at 158.
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II. STANDARD OF REVIEW
Appellant challenges the bankruptcy court’s conclusions of law regarding the
application of the doctrine of collateral estoppel. A bankruptcy court’s application of
collateral estoppel is reviewed de novo. 20
III. DISCUSSION
The bankruptcy court did not err in applying collateral estoppel.
Terrell argues the bankruptcy court erred in determining his conviction in the
Criminal Case collaterally estopped him from challenging the nondischargeability of the
Tax Liability under § 523(a)(1)(C). He does not, however, present arguments as to why
the bankruptcy court’s application of collateral estoppel was in error.
The doctrine of collateral estoppel, also known as issue preclusion, bars the
relitigation of identical issues between identical parties. 21 Collateral estoppel applies to
dischargeability proceedings in bankruptcy 22 if the following elements are met:
(1) the issue previously decided is identical with the one presented in the
action in question, (2) the prior action has been finally adjudicated on the
merits, (3) the party against whom the doctrine is invoked was a party or in
privity with a party to the prior adjudication, and (4) the party against
20
United States v. Rogers, 960 F.2d 1501, 1507 (10th Cir. 1992) (citing Hubbert v.
City of Moore, 923 F.2d 769, 772 (10th Cir.1991)).
21
Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 (1979) (citing Blonder-Tongue
Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 328-29 (1971)).
22
McCart v. Jordana (In re Jordana), 232 B.R. 469, 475 (10th Cir. BAP 1999)
(citing Grogan v. Garner, 498 U.S. 279, 284-85 n.11 (1991)), aff’d, 216 F.3d 1087 (10th
Cir. 2000).
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whom the doctrine is raised had a full and fair opportunity to litigate the
issue in the prior action. 23
In the instant case, the bankruptcy court correctly applied the collateral estoppel
doctrine. First, the issue in the Criminal Case is identical to the issue presented in the
Adversary Proceeding. 24 The factual issues underlying Terrell’s criminal conviction were
the same factual issues before the bankruptcy court in considering nondischargeability
under § 523(a)(1)(C): whether Terrell was guilty under 26 U.S.C. § 7206(1); 25 whether
he knew he filed his 1997 income tax return under penalty of perjury; whether he knew
his reported income was substantially inaccurate; 26 and whether he deliberately and
intentionally filed an incorrect tax return. Second, Terrell’s guilty plea in the Criminal
23
Id. at 475-76. (quoting Frandsen v. Westinghouse Corp., 46 F.3d 975, 978 (10th
Cir. 1995)).
24
Section 523(a)(1)(C) provides that federal income tax and interest assessments are
not discharged in bankruptcy if the debtor, with respect to those liabilities, “made a
fraudulent return or willfully attempted in any manner to evade or defeat such tax.” The
Tenth Circuit has held that § 523(a)(1)(C)’s “willful” requirement and evidence of
requisite willful intent has been met when the debtor had a duty, had knowledge of the
duty, and then voluntarily and intentionally violated the duty. Vaughn v. United States (In
re Vaughn), 765 F.3d 1174, 1181 (10th Cir. 2014).
25
United States Code § 7206(1) provides any person who “[w]illfully makes and
subscribes any return, statement, or other document, which contains or is verified by a
written declaration that it is made under the penalties of perjury, and which he does not
believe to be true and correct as to every material matter” shall be guilty of a felony. 26
U.S.C. § 7206(1).
26
Terrell knew his 1997 return reported his income around $10,000 and knew his
income at the time was actually more than $130,000. Exhibit 9, United States’ Brief in
Support of its Motion for Summary Judgment at 19, in Appellant’s App. at 142.
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Case constitutes a full adjudication on the merits. 27 Third, both Terrell and the IRS were
parties to the Criminal Case. Finally, Terrell had a full and fair opportunity to litigate the
Criminal Case. 28 Accordingly, upon applying de novo review, we hold the bankruptcy
court did not err in its application of collateral estoppel.
Now, for the first time, Terrell also argues summary judgment was inappropriate
because he “sought to have the Bankruptcy Court determine the total amount of taxes, if
any, that he owe[d] for the 1997 tax year.” 29 He claims that the bankruptcy court’s failure
to address that was error. We may consider Terrell’s arguments only if the Complaint
27
Goff v. IRS (In re Goff), 180 B.R. 193, 198-99 (Bankr. W.D. Tenn. 1995) (finding
plea agreement regarding willful attempt to evade tax collaterally estopped debtor from
disputing the nondischargeability of his debts).
28
See, e.g., Id. at 199; McCart v. Jordana (In re Jordana), 221 B.R. 950, 953
(Bankr. W.D. Okla. 1998) (a consent judgment may support finding that the party had a
full and fair opportunity to litigate an issue), aff’d, 232 B.R. 469 (10th Cir. BAP 1999),
aff’d, 216 F.3d 1087 (10th Cir. 2000). The bankruptcy court specifically found “[a] guilty
plea satisfies the ‘actually litigated’ element of collateral estoppel.” Summary Judgment
Order at 12 n.4, in Appellant’s App. at 158 (citing BT Commercial Corp. v. Kochekian
(In re Kochekian), 175 B.R. 883, 889 (Bankr. M.D.N.C. 1995); Am. Nat’l Bank & Tr. Co.
of Chicago v. Cooper (In re Cooper), 125 B.R. 777, 780 (Bankr. N.D. Ill. 1991)).
29
Appellant’s Br. 5.
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included the Tax Determination Request as a distinct claim for relief. 30 Because it did
not, we need not reach the merits of this argument. 31
While Terrell argues he raised the Tax Determination Request in his Response; 32
merely raising a claim for relief in a response to a summary judgment motion is
insufficient to constitute an amendment to a complaint. 33 Accordingly, the bankruptcy
court did not err in granting the Motion for Summary Judgment and determining the Tax
Liability to be nondischargeable pursuant to § 523(a)(1)(C).
30
See BV Jordanelle, LLC v. Old Republic Nat’l Title Ins. Co., 830 F.3d 1195, 1204-
05 (10th Cir. 2016) (citing Jackson v. Integra Inc., 952 F.2d 1260, 1261 (10th Cir. 1991)
(stating that the “court cannot review matters outside of the complaint”)); accord Mele v.
Fed. Reserve Bank of N.Y., 359 F.3d 251, 256-57 (3d Cir. 2004) (declining to consider a
claim raised in briefing on a Rule 12(c) motion, but not in the complaint). The
bankruptcy court noted “[t]he Complaint does not ask the Court to determine how much
Terrell owed . . . .” Summary Judgment Order at 5 n.3, in Appellant’s App. at 151.
31
BV Jordanelle, 830 F.3d at 1204-05 (citing Jackson, 952 F.2d at 1261).
32
Terrell raised the Tax Determination Request in his Response and requested the
bankruptcy court allow him sufficient time to amend the Complaint if the bankruptcy
court determined that the Complaint did not adequately state a cause of action. Response
at 4 n.1, in Appellee’s App. at 4. Terrell, however, never filed an amended complaint or
sought leave from the bankruptcy court to do so.
33
Fed. R. Civ. P. 15, made applicable to adversary proceedings pursuant to Fed. R.
Bankr. P. 7015 (party must obtain written permission from opposing party or court’s
leave to amend a complaint after certain stages of litigation have passed); ACE USA v.
Union Pac. R.R. Co., No. 09-2194-KHV, 2011 WL 6097138, at *6 (D. Kan. Dec. 7,
2011) (raising an argument in summary judgment briefs was insufficient to put it before
the court, “[i]f plaintiffs decided to change their strategy, they should have filed a proper
motion to amend the pleadings . . . .”).
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IV. CONCLUSION
The bankruptcy court did not err in determining the doctrine of collateral estoppel
barred Terrell from disputing facts material to the determination of dischargeability of the
Tax Liability and did not err in determining the Tax Liability to be nondischargeable
pursuant to § 523(a)(1)(C). Accordingly, the bankruptcy court’s decision should be
AFFIRMED.
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