484 B.R. 698
Bankr. S.D. Ohio2012Background
- Johnston files no-asset Chapter 7; sues IRS and Middletown over who is the responsible person for trust fund taxes of three companies he wholly owns.
- Three entities are JMI, Inc., IMJ, Inc., Spectrum Site Services; taxes and penalties assessed against Johnston as responsible person.
- Estate is estate of no assets; trustee filed no-asset report and discharged Johnston on January 19, 2012.
- Counts I–II seek declarations that Johnston is not responsible for federal and municipal (Middletown) trust fund taxes for 2007–2010.
- Count III alleges the IRS post-petition tax refund setoff violated the automatic stay and constitutes a §547 preference; Johnston lacks standing to pursue post-petition transfers under §549.
- Court must determine whether subject matter jurisdiction exists, and whether abstention or standing issues require dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Jurisdiction over Counts I & II | Johnston asserts §1334(c)(1), §157, and §505(a)(1) grant jurisdiction. | US argues no core or related-to jurisdiction; no independence under §505. | Lack of subject matter jurisdiction over Counts I & II. |
| Abstention under §1334(c)(1) | Abstention not required if jurisdiction exists and avoids forum shopping. | Abstention appropriate due to state-law issues and no estate impact. | Abstention under §1334(c)(1) is proper. |
| Abstention under §505(a) | §505(a) supports determination of tax liability. | §505 does not create independent jurisdiction; similar abstention considerations apply. | Abstention under §505(a) appropriate; decline to determine tax liability here. |
| Standing to pursue Count III (prepetition preference/§547 or §549) | Debtor may seek avoidance as trustee substitute under §544 et al. | Trustee, not debtor, has standing; no exemption claimed; setoff not recoverable by debtor. | Johnston lacks standing; Count III dismissed for lack of standing. |
| Overall outcome | Counts I–II dismissed for lack of jurisdiction; Count III dismissed for lack of standing. |
Key Cases Cited
- Wolverine Radio Co. v. Coe, 930 F.2d 1132 (6th Cir. 1991) (Pacor test adopted to relate to estate; 'related to' requirement must be met)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (defines 'related to' standard for jurisdiction in bankruptcy matters)
- In re Swain, 437 B.R. 549 (E.D. Mich. 2010) (discusses §505 as jurisdictional issue; different treatment of 505 and 1334)
- In re Kohl, 397 B.R. 840 (Bankr.N.D. Ohio 2008) (holds §505 may not independently grant jurisdiction; abstention analyzed under §1334/157)
- In re Holly’s, Inc., 172 B.R. 545 (Bankr.W.D. Mich. 1994) (abandons broad core concept; abstention considerations for tax-liability matters)
- In re Wolverine Radio Co., 930 F.2d 1132 (6th Cir. 1991) (reiterates Pacor test and core/noncore distinctions in bankruptcy jurisdiction)