522 B.R. 232
Bankr. C.D. Cal.2014Background
- Debtor (Saeed Cohen) and Ms. Fariba Cohen accumulated substantial undisclosed foreign-account income (via Elco/Amp Plus) during their marriage (2003–2008); they separated in 2010 and bankruptcy was filed June 25, 2013.
- The IRS assessed a large claim (secured portion ~ $8.2M) based on an Offshore Voluntary Disclosure Initiative (OVDI) closing agreement entered into by Debtor post-separation, which the IRS treats as a miscellaneous penalty settling liabilities for 2003–2008.
- The Committee and Debtor contend the bulk of the IRS claim arises from pre-separation tax/FBAR liabilities; Ms. Cohen contends the OVDI settlement created a post-separation contractual obligation and thus is not a community claim.
- Two interpleader adversary proceedings (Lighton; Nazarian) concern who is entitled to interpled rents/loan repayments involving Elco/Lighton; parties dispute priority among IRS, estate, and Ms. Cohen.
- The court considered whether the IRS claim is a community claim under 11 U.S.C. §§ 101(7), 541(a)(2) and relevant California family law, and whether the bankruptcy court has jurisdiction/constitutional authority to enter final orders on these issues.
Issues
| Issue | Plaintiff's Argument (Ms. Cohen) | Defendant's Argument (IRS / Debtor / Committee) | Held |
|---|---|---|---|
| Whether IRS claim (OVDI closing agreement) is a community claim under §101(7) | The OVDI closing agreement is a post-separation contract that "incurred" after separation, so community property is not liable | The closing agreement settled pre-separation tax/FBAR liabilities (2003–2008); under Cal. Fam. Code and federal law those debts were incurred during marriage and are community claims | Held: Majority of IRS claim (miscellaneous penalty and pre-separation taxes) is a community claim; post-separation debts (2011–2012) and certain 2010-year items reserved for later determination |
| Whether Debtor’s settlement with IRS converted pre-separation liabilities into non-community (sole) obligations or violated family restraining orders | Ms. Cohen: settlement without her consent retroactively impaired community interests or violated ATRO; settlement made her liable only in personam | Debtor/IRS: settlement simply resolved pre-existing pre-separation liabilities; no authority that settlement converts incurred-date; ATRO does not prohibit settling one’s own liability | Held: Settlement did not change date the obligations were incurred; no basis to avoid settlement or treat community as exonerated |
| Priority in interpleader funds (Lighton/Nazarian) — does IRS lien or Ms. Cohen’s temporary support order give priority | Ms. Cohen: Superior Court temporary order and claimed 50% support entitlement give her prior interest in interpled funds | Committee/Debtor/IRS: temporary support order does not create binding property interest ahead of creditors; IRS does not assert lien on post-petition earnings; creditors and estate have priority | Held: Ms. Cohen has no superior claim; interpled funds to be distributed to Elco/Lighton to hold pending further order; genuine disputes about source/recipients reserved |
| Whether bankruptcy court has authority to enter final orders on these matters | (Ms. Cohen & IRS declined consent to bankruptcy court final adjudication) argued constitutional limits under Stern | Debtor & Committee consented; court also argues matters "arise in/under" bankruptcy or would be necessarily resolved in claims-allowance process | Held: Court has subject-matter jurisdiction and constitutional authority (Stern tests satisfy either because no jury right implicated and matters are part of claims-allowance process); may enter final orders on issues presented |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (2011) (limits on bankruptcy courts’ ability to enter final judgments; two-part test applied)
- Butner v. United States, 440 U.S. 48 (1979) (state law governs property rights absent federal override)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (distinguishing core proceedings and jury-right considerations)
- Katchen v. Landy, 382 U.S. 323 (1966) (claims-allowance process may encompass summary proceedings without jury when necessary to resolve proofs of claim)
- Archer v. Warner, 538 U.S. 314 (2003) (settlement/novation does not necessarily convert nondischargeable liabilities into different character)
- Lezine v. Security Pac. Fin. Servs., Inc., 14 Cal.4th 56 (1996) (California: community liable for debts incurred by either spouse during marriage)
- In re Marriage of Hirsch, 211 Cal.App.3d 104 (1989) (post-separation settlement of pre-separation debts remains community liability)
- In re Marriage of Hargrave, 36 Cal.App.4th 1313 (1995) (tax debts incurred during marriage remained community obligations despite post-marriage settlement)