525 B.R. 682
Bankr. W.D. Tenn.2015Background
- IRS levy issued March 28, 2014 to Trustee targeting Highway 64’s disbursements in multiple Western District of Tennessee Chapter 13 cases.
- Trustee determined Highway 64 was a creditor in 12 Chapter 13 cases; funds in three cases were potentially due to Highway 64.
- Only $235 by 3/28–4/14 was distributable under plan in Toneka Allen (11-12927) and remnant funds remained in Trustee’s hands.
- Trustee disbursed $235 to Highway 64 on 4/14/2014 under 11 U.S.C. § 1326 after expectant withdrawal of levy.
- Keno Palmer case dismissals and Torayo Brown case status affected remaining funds and potential distributions.
- Court concludes IRS levy violated automatic stay; Trustee’s quash granted but without prejudice to relief from stay under § 362(d)(1).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether undistributed funds held by the Trustee are property of the estate. | Trustee: undistributed funds remain property of the estate post-confirmation. | IRS: levy does not deplete estate or control estate property; funds might be outside estate. | Undistributed funds remain property of the estate; levy violates § 362(a)(3). |
| Whether the IRS levy constitutes an act to obtain possession of property of the estate. | Levy seeks to control or possess estate property via Trustee’s funds. | levy is a customary administrative step, not an attempt to deplete estate. | Yes, levy is an act to obtain possession/control of estate property and violates § 362(a)(3). |
| Whether any exception to the automatic stay applies to the IRS levy. | IRS argues Laughlin/Hemmen-type exception applies. | Court should apply judicially crafted exceptions to stay. | No § 362(b) exception applies; Laughlin/Hemmen rationale rejected for this case. |
| Whether the IRS must seek relief from the stay before enforcing a levy against estate funds. | IRS should not override stay without relief. | Not applicable; levy affects only assets of Highway 64. | IRS must obtain stay relief under § 362(a) before enforcing levy against estate funds. |
Key Cases Cited
- Lamie v. United States Tr., 540 U.S. 526, 540 U.S. 526 (U.S. 2004) (statutory interpretation principle; plain meaning governs)
- In re Nat’l Century Fin. Enters., Inc., 423 F.3d 567, 423 F.3d 567 (6th Cir. 2005) (stay protects property of the estate; delineates § 362(a)(1),(3) scope)
- Laughlin v. United States ex rel. IRS, 912 F.2d 196, 912 F.2d 196 (8th Cir. 1990) (majority hold: levy on funds payable to debtor’s attorney not stay-impairing)
- Hemmen v. United States, 51 F.3d 889, 51 F.3d 889 (9th Cir. 1995) (adopts Laughlin-like exception; real debate over stay scope)
- Clark v. United States (In re Clark), 207 B.R. 559, 207 B.R. 559 (Bankr. S.D. Ohio 1997) (bankruptcy stay’s procedural scope; estate administration linked to stay)
- National Century Fin. Enters., Inc., 423 F.3d 567, 423 F.3d 567 (6th Cir. 2005) (depletion of estate as a factor in § 362(a)(3) analyses)
- Patton v. Bearden, 8 F.3d 343, 8 F.3d 343 (6th Cir. 1993) (unusual circumstances for extending stay to nondebtors (contextual))
- Laughlin v. United States ex rel. IRS, 912 F.2d 196 (8th Cir. 1990), 912 F.2d 196 (8th Cir. 1990) (treatises cited regarding stay exceptions; context for Laughlin/Hemmen)