In re Billie Lamont GARDNER, Debtor. Terryl A. GARDNER, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant, and William H. Zimmerman, Jr., Trustee, Defendant.
No. 89-3209
United States Court of Appeals, Tenth Circuit
Sept. 18, 1990.
913 F.2d 1515
I agree with the panel that no meaningful distinction can be made between the name of the applicant and the information he provides on the application. To that extent, I am in accord. It is beyond that point which I cannot go.
My views here are consistent with what we have done in a closely parallel situation. In McNichols v. Klutznick, 644 F.2d 844 (10th Cir.1981), aff‘d, 455 U.S. 345, 102 S.Ct. 1103, 71 L.Ed.2d 199 (1982), we enforced the broad, clear language of confidentiality which closely parallels this case against perfectly logical arguments for exceptions which were not categorically forbidden. Our response to the perfectly logical arguments for the exception which the trial court made was:
Congress has neither made nor implied such an allowance in its prohibition аnd no authority is given for the notion that Congress is constitutionally required to yield to such an argument. The government has promised its citizens that census information will be kept confidential.
13 U.S.C. §§ 8(b) ,(c) ,9(a) . In exchange for and in reliance on this promise, citizens cooperate with the government‘s census taking efforts relatively free of inhibitions that might otherwise distort their disclosures. In these times when confidence in the government‘s resolve to keep its promises to its citizens is not notorious, we should not readily find excuses to abandon or prohibit the enforcement of those promises. We do not believe that in the face of the congressional prohibitions, the trial court has the authority to substitute its own techniques for protecting the confidentiality mandated by the statute.
McNichols v. Klutznick, 644 F.2d at 845.
Neither the language nor reason suggests that the purpose to encourage application and forthright disclosure can be served by the creation of an exception which potentially puts the applicant in jeopardy of criminal prosecution. Quite the contrary is true. For that reason I would reverse and remand for a new trial without the use of this information which was disclosed under a guarantee of protection by the statute itself and on the solemn promise of our government thаt it would be held confidential even from the Attorney General of the United States for these purposes.
J. Michael Morris of Klenda, Mitchell, Austerman & Zuercher, Wichita, Kan., for plaintiff-appellee.
Before MOORE, BRIGHT,* and BRORBY, Circuit Judges.
PER CURIAM.
Defendant-appellant United States of America appeals from an order of the district court affirming a bankruptcy court
The facts in this case either were stipulated or are undisputed. On January 22, 1985, Mrs. Gardner commenced divorce proceedings in Kansas state court. The Internal Revenue Service filed a tax lien against Mr. Gardner on August 4, 1986.1 Two days later, Mr. Gardner filed for bankruptcy undеr Chapter 7. On September 19, 1986, the bankruptcy court lifted the automatic stay to allow the divorce proceedings, including division of property, to continue, but cautioned that any division of property would not be conclusive as to the bankruptcy trustee. On January 12, 1987, the divorce court entered a decree of divorce, awarding nearly all of the property to Mrs. Gardner. At that time, all but the exempt proрerty was held by the trustee.
Mrs. Gardner brought an adversary action against the bankruptcy trustee on February 2, 1988, to obtain the bankruptcy estate property awarded to her in the divorce action. Defining the action as a conflict over ownership rights of property rather than a controversy concerning priorities, the bankruptcy court determined that Mr. Gardner had a “vested but an as yet undetermined ownership intеrest” in all marital property at the time of commencement of the divorce action. The entry of the divorce decree, however, served to divest any interest Mr. Gardner had in the property. Because the state court divested Mr. Gardner‘s interest in the property by entry of the final divorce decree, the bankruptcy court held that any interest the government claimed to the property as a result оf the tax lien was extinguished.
The government appealed to the district court raising issues relating to the bankruptcy court‘s jurisdiction over exempt property and to the priority of its tax lien. The district court did not resolve the jurisdictional issue on the ground that Mrs. Gardner‘s complaint had only requested award of the nonexempt property. The district court affirmed the bankruptcy court‘s decision that Mrs. Gardner was entitled to the nonexempt property. In doing so, the district court determined that Mr. Gardner held a vested interest in the marital property during the divorce proceedings that the tax lien attached to, but the interest was divested by the divorce decree, thereby subjecting the tax lien to divestiture.
The first issue on appeal relates to the jurisdiction of the bankruptcy court. The government contends the bankruptcy court lacked jurisdiction to determine the priority of two competing third-party lienors over property that was exempt from the bankruptcy estate. We believe the jurisdictional issue is even more fundamental and concerns the bankruptcy court‘s jurisdiction to determine which lienor was entitled to property no longer a part of the bankruptcy estate. We conclude the bankruptcy court lacked jurisdiction to detеrmine whether Mrs. Gardner‘s interests were superior to those of the government after concluding Mr. Gardner had no interest in the property.
Bankruptcy courts have only the jurisdiction and powers expressly or by necessary implication granted by Congress. Johnson v. First Nat‘l Bank of Montevideo, 719 F.2d 270, 273 (8th Cir.1983), cert. denied, 465 U.S. 1012, 104 S.Ct. 1015, 79 L.Ed.2d 245 (1984). Bankruptcy courts have jurisdiction over core proceedings.
Bankruptcy courts also have jurisdiction over related proceedings, under the authority of
A bankruptcy court has jurisdiction over disputes regarding alleged рroperty of the bankruptcy estate at the outset of the case. In re Xonics, Inc., 813 F.2d 127, 131 (7th Cir.1987). When property leaves the bankruptcy estate, however, the bankruptcy court‘s jurisdiction typically lapses, In re Hall‘s Motor Transit Co., 889 F.2d 520, 523 (3d Cir.1989); In re Xonics, Inc., 813 F.2d at 131; In re Muller, 72 B.R. 280, 284 (C.D.Ill.1987), aff‘d, 851 F.2d 916 (7th Cir.1988), cert. denied, --- U.S. ---, 109 S.Ct. 1645, 104 L.Ed.2d 160 (1989), and the property‘s relationship to the bankruptcy proceeding comes to an end. See In re Hall‘s Motor Transit Co., 889 F.2d at 523. Thus, the bankruptcy court lacks related jurisdiction to resolve controversies between third party creditors which do not invоlve the debtor or his property unless the court cannot complete administrative duties without resolving the controversy. In re Shirley Duke Assocs., 611 F.2d 15, 18 (2d Cir.1979).
In this case, the dispute between the government and Mrs. Gardner does not involve identification of the debtor‘s property interest, since the bankruptcy court had determined Mr. Gardner had no interest in the property. See In re Xonics, Inc., 813 F.2d at 131. Rather, this case involves the conflict between two creditors over рroperty no longer a part of the bankruptcy estate. The conflict between the government and Mrs. Gardner is irrelevant to the bankruptcy estate, because the disputes regarding their stake in Mr. Gardner‘s property have been resolved, see In re Incor, Inc., 100 B.R. 790, 799 (Bankr.D.Md.1989), and neither Mr. Gardner nor the bankruptcy estate are affected by the dis-
Since the dispute is not otherwise related and would not affect the distribution of assets and administration of the bankruptcy estate, we hold the bankruptcy court lacked jurisdiction to resolve the dispute between Mrs. Gardner and the government regarding a lien on nonestate property. See In re Holland Indus., Inc., 103 B.R. at 469; In re Dickenson Lines, Inc., 47 B.R. 653, 656 (Bankr.D.Minn.1985). To hold otherwise would lead to almost unlimited jurisdiction by the bankruptcy court. In re Dickenson Lines, Inc., 47 B.R. at 656. Either the federal district court or the state courts are the proper forum for resolving this dispute regarding property not belonging to Mr. Gardner.
Because we conclude the bankruptcy court lacked jurisdiction to resolve the dispute between Mrs. Gardner and the government, we need not reach the government‘s argument that the lower courts erred in holding that Mrs. Gardner‘s interest in the nonexempt property had priority over the government‘s perfected tax lien.
The judgment of the United States District Court for the District of Kansas is AFFIRMED tо the extent it affirmed the bankruptcy court‘s determination that Mr. Gardner had no interest in the marital property after the final divorce decree. The judgment is VACATED, and the action is REMANDED with instructions to remand to the bankruptcy court to dismiss for lack of subject matter jurisdiction the portion of the bankruptcy court‘s opinion and judgment adjudicating the property rights of Mrs. Gardner and the government.
ENTERED FOR THE COURT PER CURIAM.
BRIGHT, Circuit Judge, dissenting.
The majority today decides that a statе court decree can divest a federal bankruptcy court of jurisdiction even though the bankruptcy court acquired jurisdiction at the commencement of the case. This ruling elevates state law over federal law in contravention of well settled principles and leads to an incorrect result. Accordingly, I dissent.
Mrs. Gardner brought this action against Mr. Gardner‘s bankruptcy trustee and the Government seeking propеrty of the estate held by the trustee. The Government objected on the grounds that it had a federal tax lien with priority over Mrs. Gardner‘s claim to the property.
The majority concedes that at the start of the action the bankruptcy court had jurisdiction to determine whether to decide the controversy between Mr. Gardner and his divorced wife. Nevertheless, the majority decides that the state court decree аwarding Mr. Gardner‘s property to Mrs. Gardner divested the bankruptcy court of jurisdiction to consider the Government‘s objection. Thus, under the majority‘s analysis, the court had jurisdiction over the action brought by Mrs. Gardner and could award her the property held by the trustee, but could not consider whether the Government had a superior claim to the property.
The Internal Revenue Code “creates no property rights but merely attaches consequences, federally defined, to rights created under state law....” United States v. Bess, 357 U.S. 51, 55, 78 S.Ct. 1054, 1057, 2 L.Ed.2d 1135 (1958). The bankruptcy court and the district court misapplied this principle in deciding that Mr. Gardner had no interest in the property of the estate and that the federal tax lien, which had previously attached to the property held by the trustee, somehow evaporated when the state court awarded the property to Mrs. Gardner. The majority recasts this analy-
The analysis is flawed in my view. Once the bankruptcy court acquired jurisdiction over the debtor‘s property, that jurisdiction continued to determine all controversies relаting to claims of any and all parties to that property. Thus, the bankruptcy court could determine the priorities between the parties. In this case, the bankruptcy court proceeded to decide the priority between the Government and Mrs. Gardner but erred in its determination.
The bankruptcy court and the district court fail to recognize a line of Supreme Court cases directly governing this situation. In United States v. Security Trust & Savings Bank, 340 U.S. 47, 71 S.Ct. 111, 95 L.Ed. 53 (1950), and its progeny,1 the Supreme Cоurt developed a set of principles to govern issues of priority between federal tax liens and security interests created by state law. This line of cases applies to the situation at hand because Mrs. Gardner‘s interest in the property at the time the federal tax lien attached upon examination represents nothing more than a type of security interest, regardless of the state law charaсterization of the interest as “a species of common or co-ownership....” Smith v. AIFAM Enters., Inc., 241 Kan. 249, 737 P.2d 469, 474 (1987).
The effect of Mrs. Gardner‘s interest in relation to the federal tax lien presents a question of federal law. Security Trust, 340 U.S. at 50, 71 S.Ct. at 113. Upon the filing of a divorce, Kansas law creates an interest in one spouse in all the property owned jointly by both spouses or owned individually by the other spouse. See Smith, 737 P.2d at 474;
In other words, at the filing of the action one spouse gets an interest in the other spouse‘s property, but the extent of that interest, if any, depends upon the outcome of the divorce proceedings. Thus, there exists no significant distinction for federal tax lien purposes between the interest created under Kansas law and a traditional attachment lien filеd at the beginning of a lawsuit.
In Security Trust, the Supreme Court considered whether a federal tax lien takes priority over an attachment lien, where the federal tax lien was recorded subsequent to the date of the attachment lien, but prior to the date the attaching creditor obtained judgment. The Court held that the federal tax lien took priority in that case, despite having been filed later, because “[n]umerous contingencies might arise that would prevent the attachment lien from ever becoming perfected by a judgment awarded and recorded. Thus the attachment lien is contingent or inchoate—merely a lis pendens notice that a right to perfect a lien exists.” Security Trust, 340 U.S. at 50, 71 S.Ct. at 113.
Under the federal law of tax liens then, a competing lien must not only become effective first, it must be choate—“the identity of the lienor, the property subject to the lien, and the amount of the lien [must be] established“—in order to take precedence over a competing federal tax lien. United States v. New Britain, 347 U.S. 81, 84, 74 S.Ct. 367, 369, 98 L.Ed. 520 (1954); see also United States v. Kimbell Foods, Inc., 440 U.S. 715, 721, 99 S.Ct. 1448, 1454-55, 59 L.Ed.2d 711 (1979). In the case at hand,
The district court‘s and bankruptcy court‘s error in this case resulted from viewing the facts of the case in hindsight. Both courts recognized that the federal tax lien attached only to Mr. Gardner‘s interest in the property. But the courts then asked what interest of Mr. Gardner‘s remained after the state court issued its divorce decree. The proper time frame for determining the extent of property to which a federal tax lien attaches, however, is the date on which the tax lien becomes effective. This is implicit in the Court‘s discussion in Security Trust of the doctrine of relation back:
Nor can the doctrine of relation back—which by process of judicial reasoning merges the attachment lien in the judgment and relates the judgment lien back to the date of attachment—operate to destroy the realities of the situation. When the tax liens of the United States were recorded, [the creditor] did not have a judgment lien. He had a mere “cаveat of a more perfect lien to come.”
340 U.S. at 50, 71 S.Ct. at 113 (citation omitted). On the date that the tax lien in this case became effective, the date the Government recorded the tax lien, Mr. Gardner still had ownership rights in the property and the tax lien attached to those rights.
The majority commits a similar error. As discussed above, the proper time frame for determining whether the Government‘s tax lien or Mrs. Gardner‘s interest takеs priority is the date the Government recorded the tax lien. But the majority examines the case from a point later in time, after the state court awarded Mrs. Gardner virtually all of Mr. Gardner‘s property. This represents nothing more than a jurisdictional variant of the doctrine of relation back, which the Supreme Court specifically rejected in Security Trust.
Moreover, it would be a waste of time for a bankruptcy court to bifurсate the proceedings in the unusual manner prescribed by the majority. Bankruptcy courts have jurisdiction to decide priority disputes between creditors claiming rights in property of the estate held by the trustee. At the time Mrs. Gardner brought this action seeking to be awarded the property held by the trustee, the court had jurisdiction over the property.4 The majority decides that the court could decide that Mrs. Gardner was entitled to the property but could not consider the Government‘s competing claim. In summary, my view is that once jurisdiction attached, that jurisdiction continued for the full resolution of the rights to the property.
I would reverse the judgment of the district court and remand this case for entry of an appropriate judgment consistent with this dissenting opinion.