Opinion
BKY No. 02-42570, Adv. No. 02-4180 (NCD), Civil No. 03-5592, 03-6362 (JRT).
July 1, 2004
Brett R. Hanson, Minneapolis, MN, debtor pro se.
Michael R. Pahl, UNITED STATES DEPARTMENT OF JUSTICE, Washington, DC, for defendant.
MEMORANDUM OPINION AND ORDER AFFIRMING THE ORDERS OF THE BANKRUPTCY JUDGE
Brett Hanson filed an adversary proceeding against the United States Internal Revenue Service ("IRS") in connection with his Chapter 7 bankruptcy case. The United States Bankruptcy Court for the District of Minnesota, the Honorable Nancy Dreher presiding, granted summary judgment in favor of the IRS. Hanson appeals.
FACTUAL AND PROCEDURAL BACKGROUND
On August 5, 2002, Hanson filed a voluntary Chapter 13 bankruptcy petition in the United States Bankruptcy Court for the District of Minnesota, Minneapolis Division. (Appellant's Br. at 4.) Hanson's Chapter 13 bankruptcy petition was converted to a Chapter 11 and then to a Chapter 7 bankruptcy. ( Id.) The Internal Revenue Service ("IRS"), a scheduled creditor of Hanson, filed a proof of claim for unpaid trust fund penalties. (Hanson's Adversary Complaint ("Hanson Compl.") ¶¶ 2-3, at Appellant's Br., Tab 1.) Hanson filed an adversary complaint against the IRS disputing the trust fund penalty amounts listed in the IRS's proof of claim. Id. Specifically, Hanson alleged that he was not responsible for trust fund recovery penalties against four businesses, each of which Hanson presided over as a corporate officer. (Transcript of Hearings on Motions before the Hon. Nancy C. Dreher, July 22, 2003 ("First Summ. J. Tr."), at Appellant's Br., Tab 43 at 43.) Alternatively, Hanson argued that even if he was responsible for the trust fund penalties, the IRS miscalculated and overstated the penalty amounts. ( Id.)Over the course of pre-trial litigation, the deadline for discovery was extended three times by the Bankruptcy Court. (Docket Sheet, at Appellant's Br., Tab A.) The IRS filed its Motion for Summary Judgment on May 30. (Appellant's Br. at 5.) The Bankruptcy Court held two separate hearings on the motion. Following the first hearing, the court granted partial summary judgment in favor of the IRS on the issues of Hanson's responsibility and liability for the trust fund penalties. (First Summ. J. Tr., at Appellant's Br., Tab 43 at 3). Specifically, the court found that Hanson was a responsible person for the four businesses in question during the tax assessment periods claimed by the IRS. The court also determined that, for each of the four businesses, Hanson failed to establish a genuine issue of material fact regarding the accuracy of the IRS tax assessments. Thus, the Bankruptcy Court found no genuine issues of material fact regarding either Hanson's responsibility or liability for trust fund penalties. (First Summ. J. Tr., at Appellant's Br., Tab 43 at 48-63.) The court issued its Order Granting Defendant Partial Summary Judgment, finding Hanson to be a responsible person for over $700,000 in trust fund penalties. (Appellant's Br., Tab 22)
The court reserved the issue of "collectability" for the second partial summary judgment hearing on September 3, 2003.
On the day of the first hearing, Hanson served the IRS with a Motion to Hold Creditor IRS in Contempt for violating an automatic stay by initiating collection efforts against Industrial Printing, LLC, during the course of the bankruptcy proceedings. (Appellant's Br., Tab 21.) Hanson argued that he was the sole owner of Industrial Printing, that Industrial Printing was thus property of the bankruptcy estate, and that the IRS was therefore subject to the automatic stay suspending its collection efforts under 11 U.S.C. § 362. (Appellant's Br. at 6-12.) Three days after the first hearing, Hanson also filed a Motion to Compel Answers to Interrogatories against the Defendant, claiming that the IRS had failed to answer his interrogatories and that the IRS had failed to produce requested parties for depositions. (Appellant's Br., Tab 27 ¶¶ 1-12.) The Bankruptcy Court addressed these two motions during the second partial summary judgment hearing on September 3, 2003. (Transcript of Hearings on Motions Before the Hon. Nancy C. Dreher, Sept. 3, 2003 ("Second Summ. J. Tr."), at Appellant's Br., Tab 44 at 35-51.) The court also addressed whether the trust fund penalties were collectible, i.e., whether a ten-year statute of limitations had run on any of the outstanding trust fund penalties owed by Hanson. ( Id. at 7, 26-34.)
Following the hearing, the Bankruptcy Court held that the ten-year statute of limitations had not run on the majority of the IRS's claims against Hanson. ( Id. at 27-28.) In addition, the court denied Hanson's Motion to Compel Answers to Interrogatories both on procedural grounds and on the merits. The court noted that Hanson failed to comply with rules requiring the movant to confer with opposing counsel prior to his motion to compel discovery. ( Id. at 37.) The court also determined that Hanson's Motion to Compel was unfounded on the merits, finding that the IRS's responses of May 30 to interrogatories were adequate. ( Id.)
Bankruptcy Rule 7037, incorporating Federal Rule of Civil Procedure 37(a)(2)(A), provides: "The motion must include a certification that the movant has in good faith conferred or attempted to confer with the party not making the disclosure in an effort to secure the disclosure without court action."
The court did not make specific findings of fact with respect to Hanson's claim that the IRS had failed to produce parties for deposition. The record indicates, however, that Hanson cancelled three depositions with IRS representatives that may have supplemented the interrogatory answers provided by the Defendant. ( See Appellee United States' Responsive Br. at 8.)
Finally, the court denied Hanson's Motion to Hold Creditor IRS in Contempt. According to the court, the motion was procedurally deficient because it should have been brought in a separate adversary proceeding under Rule 7001 of the Bankruptcy Rules, rather than by motion in the instant action. ( Id. at 49-50.) Hanson's contempt motion was beyond the scope of the adversary complaint, which was confined to Hanson's objections to the IRS's proof of claim for unpaid trust fund penalties. ( Id.; see also Appellee United States' Responsive Brief ("Appellee's Br.") at 6.) The court also indicated that Hanson's contempt motion was likely without merit, and warned him that commencing a new adversary proceeding against the IRS might subject him to sanctions under Bankruptcy Rule 9011. (Second Summ. J. Tr., at Appellant's Br., Tab 44 at 50.)
Thus, the court found no genuine issues of material fact regarding the statute of limitations on the IRS's proof of claim against Hanson, and granted summary judgment in favor of the defendant on this remaining issue. (Second Summ. J. Tr. at 33; Order, at Appellant's Br., Tab 47.) The Bankruptcy Court also issued an Order Denying Motions to Compel and for Contempt. (Appellant's Br., Tab 39.)
Because Hanson filed yet another Chapter 13 bankruptcy at the time of the September 2 hearing, the bankruptcy court did not enter a final judgment on the summary judgment hearings until October 15, 2003. At that time, the court combined the partial summary judgment hearings of July 22 and September 2 in a final order on the merits.
Hanson raises three issues on his pro se appeal from the court's orders. First, Hanson argues that the court erred in denying his Motion to Hold Creditor IRS in Contempt, again stating that the IRS violated the automatic stay by initiating collection actions against Industrial Printing, LLC, after Hanson had filed his Chapter 13 petition. (Appellant's Br. at 2-3.) Second, Hanson argues that the court erred in denying his Motion to Compel Discovery against the IRS. ( Id. at 3.) Third, Hanson claims that the IRS's "abuse" of the discovery process, and the court's denial of his Motion to Compel Discovery, deprived him of an opportunity to respond adequately to the IRS's Summary Judgment motion. ( Id.)
ANALYSIS
I. Interlocutory Appeal
Hanson purports to raise the first two issues in an interlocutory appeal (#03-CV-5592). (Plaintiff's First Notice of Appeal, at Appellant's Br., Tab 42.). Under 28 U.S.C. § 158(a)(2) and (3), the District Court has jurisdiction over interlocutory appeals only where the order in question is issued under 11 U.S.C. § 1121(d), or with leave of court. Leave of court to appeal from interlocutory orders should be granted sparingly, and generally only in exceptional cases. General Electric Capital Corp. v. Machinery, Inc. ( In re Machinery, Inc.), 275 B.R. 303, 306 (B.A.P. 8th Cir. 2002) (citations omitted). In determining whether to grant leave to appeal, this Court applies the standard found in 28 U.S.C. § 1292(b), which requires "(1) the question involved be one of law; (2) the question be controlling; (3) there exists a substantial ground for difference of opinion respecting the correctness of the [bankruptcy] court's decision; and (4) a finding that an immediate appeal would materially advance the ultimate termination of the litigation." Id. No substantial ground for difference of opinion exists regarding the correctness of the court's denial of Hanson's motion to hold the IRS in contempt and motion to compel discovery. Thus, this Court declines to review Hanson's so-called interlocutory appeal.
This Court has jurisdiction over appeals from final judgments, orders, and decrees under 28 U.S.C. § 158(a)(1). The Court notes that if Hanson had not filed an additional Chapter 13 petition at the time of the second partial summary judgment hearing, final judgment on the merits would have been entered against Hanson at that time. The bankruptcy court instructed that Hanson could appeal only the final judgment of the bankruptcy court, and that entry of final judgment was merely stayed pending dismissal of Hanson's new Chapter 13 filing. For these reasons, the Court finds it appropriate to review Hanson's purported interlocutory appeals as an appeal from the final judgment.
II. Standard of Review
In bankruptcy proceedings, the District Court acts as an appellate court and applies the same standard of review as the Court of Appeals. Rampy v. Messerli, 224 B.R. 701, 704 (D. Minn. 1997) (citations omitted). The bankruptcy court's findings of fact are reviewed for clear error, while its conclusions of law are reviewed de novo. Id.; F.R.Bankr.P. 8013. Thus, this Court reviews the bankruptcy court's grant of summary judgment in favor of the IRS de novo, giving considerable deference to its findings of fact. See Minn. Trust Co. v. Yanke ( In re Yanke), 230 B.R. 374, 376-77 (B.A.P. 8th Cir. 1999). The Court will affirm the grant of summary judgment "[i]f the record shows that there is no genuine issue of material fact and that the prevailing party is entitled to judgment as a matter of law." Rampy, 224 B.R. at 704 (quoting Southern Tech. College, Inc. v. Hood, 89 F.3d 1381, 1383 (8th Cir. 1996).
The Court reviews the Bankruptcy Court's orders in discovery proceedings for gross abuse of discretion. Mitchell v. Smith, 2004 WL 1326477, at *5 n. 7 (S.D. Iowa Jun. 10, 2004) (citing Gagnon v. Sprint Corp., 284 F.3d 839, 855 (8th Cir. 2002)) (additional citations omitted); Bankr. R. 7037. Thus, the court's denial of Hanson's motion to compel discovery may be reversed only upon a showing of gross abuse of discretion. Similarly, the Court's review of the denial of appellant's contempt motion is limited to determining whether the Bankruptcy Court abused its discretion. See Koehler v. Grant, 213 B.R. 567, 570 (B.A.P. 8th Cir. 1997) (citing Wright v. Nichols, 80 F.3d 1248, 1250 (8th Cir. 1996)); Wycoff v. Hedgepeth, 34 F.3d 614, 616 (8th Cir. 1994) (citing Davis v. Bowen, 894 F.2d 271, 272 (8th Cir. 1989)).
III. Appellant's Motion to Hold Creditor IRS in Contempt
Hanson first argues that the bankruptcy court abused its discretion by denying his motion to hold the IRS in contempt for violating an automatic stay. Hanson claims he is the exclusive owner of Industrial Printing, LLC, that Industrial Printing is thus property of the bankruptcy estate, and that the IRS's collection efforts against Industrial Printing violated the automatic stay under 11 U.S.C. § 362. The IRS argues that the court's denial of Hanson's contempt motion on procedural grounds was not an abuse of discretion. Alternatively, the IRS asserts that even if Hanson's contempt motion were procedurally sound, the motion was properly denied on the merits. The Court agrees that the bankruptcy court's denial of Hanson's motion, on both procedural and substantive grounds, does not constitute an abuse of discretion, and therefore affirms the court's order denying appellant's contempt motion.
Hanson's complaint against the IRS alleged that he was not a responsible person for four companies, each of which he presided over at various times as a corporate officer. Hanson's contempt motion, however, concerned the IRS's collection efforts against a fifth company, Industrial Printing. Hanson did not attempt to amend his adversary complaint under Bankruptcy Rule 7015 to include allegations that the IRS was violating the automatic stay. Nor was the validity of the IRS's collection efforts against Industrial Printing raised or disputed by Hanson in the adversary proceedings prior to the first partial summary judgment hearing. Thus, the bankruptcy court, in its sound discretion, properly determined that Hanson's contempt motion under 11 U.S.C. § 362(h) should have been brought in a separate adversary proceeding under Bankruptcy Rule 7001, and was therefore procedurally deficient.
Further, the bankruptcy court indicated that Hanson's Chapter 13 petition schedules demonstrated he was not the sole owner of Industrial Printing, LLC. As such, Industrial Printing was not considered part of the bankruptcy estate, and the IRS was not stayed from collection proceedings against Industrial Printing by the appellant's bankruptcy filing. Moreover, only "[a]n individual injured by any willful violation of a stay" may recover damages. 11 U.S.C. § 362(h) (emphasis provided). The court found no evidence to support appellant's assertion that the IRS intentionally or willfully violated any automatic stay.
This Court finds no error in the bankruptcy court's indication that no automatic stay applied to Industrial Printing or that, even if Hanson were the sole owner of Industrial Printing, he had not demonstrated that any violation of the stay was willful. The Court concludes that the bankruptcy court properly exercised its considerable discretion in determining the scope of the adversary proceedings and in denying appellant's contempt motion and the Court therefore affirms the decision of the bankruptcy court with respect to appellant's contempt motion.
IV. Appellant's Motion to Compel Discovery
Hanson argues that the bankruptcy court abused its discretion in denying his Motion to Compel Discovery against the IRS. Hanson argues that his Motion to Compel is warranted based on the IRS's failure to answer interrogatories. The court denied appellant's motion on both procedural and substantive grounds. First, the court determined that Hanson had failed to confer with opposing counsel in a required settlement conference, and that therefore his Motion to Compel Discovery was procedurally deficient under the rules of discovery in adversary bankruptcy proceedings. The court then ruled that Hanson's Motion to Compel was unfounded on the merits, because the IRS's responses to interrogatories and deposition requests were adequate.
Bankruptcy Rule 7037 requires the moving party to include a certification that the movant has conferred or attempted to confer in good faith with opposing counsel prior to filing the motion to compel.
This Court finds no basis for appellant's claim that the bankruptcy court's denial of the motion to compel constitutes a gross abuse of discretion. Review of the record supports the court's finding that the appellant failed to confer with opposing counsel as required by the rules of adversary proceedings, and its conclusion that appellant's motion to compel was therefore procedurally deficient. Further, Hanson has failed to demonstrate that the court relied on erroneous findings of fact or conclusions of law in determining that the IRS's discovery responses were adequate. Contrary to appellant's assertion that defendant failed to answer his interrogatories, this Court agrees with the bankruptcy court that the IRS's answers were fully compliant with Bankruptcy Rule 7033. Under Federal Rule of Civil Procedure 33(d), where an answer may be derived from business records, "it is a sufficient answer to such interrogatory to specify the records from which the answer may be derived. . . ." Thus, the IRS's reference to specific documents in its answers to Hanson's interrogatories was not an abuse of discovery.
Rule 7033 incorporates Federal Rule of Civil Procedure 33, Interrogatories to Parties.
In light of the above discussion and the considerable deference given to the bankruptcy court's determinations in matters relating to discovery, the Court concludes that the denial of Hanson's Motion to Compel was not a gross abuse of discretion. The Court therefore affirms the decision of the bankruptcy court with respect to Hanson's Motion to Compel Discovery.
V. Hanson's Summary Judgment Argument
The bankruptcy court granted summary judgment in favor of the IRS. Hanson's appeal from that final order is limited to the claim that the court's denial of his Motion to Compel Discovery, coupled with defendant's unspecified "discovery abuses," deprived him of an opportunity to put forth a genuine issue of material fact for summary judgment. The Court does not agree.
Summary judgment is appropriate where "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Bank. R. 7056; Fed.R.Civ.P. 56(c). Summary judgment is refused where "the nonmoving party has not had opportunity to discover information that is essential" to that party's opposition to summary judgment. Anderson v. Liberty Lobby, 477 U.S. 242, 250 n. 5 (1986). As noted above, Hanson has failed to demonstrate that the court abused its discretion by denying his motion to compel. Additionally, as previously discussed, the IRS's answers to Hanson's interrogatories adequately directed Hanson to the specific information he requested. Thus, this Court is not persuaded that granting this motion would have led to additional relevant information. Further, the Court's review of the record confirms that the court made significant efforts to accommodate Hanson, extending the discovery deadline on three separate occasions (nearly five months of additional discovery), and excusing numerous procedural deficiencies in the appellant's motions and arguments. Hanson's claim that he was unable to obtain the necessary discovery to demonstrate a genuine issue of material fact for summary judgment is thus without merit. There is no indication that extending the discovery deadline yet again would have allowed Hanson to establish a genuine issue of material fact and thus overcome a Rule 56 motion. The Court therefore affirms the decision of the bankruptcy court granting summary judgment to the IRS.
ORDER
Based on the foregoing, all the records, files, and proceedings herein, the Court AFFIRMS the Orders of the Bankruptcy Court.