UNITED STATES OF AMERICA, Plaintiff-Appellee, v. ANYSE J. STOREY, Defendant-Appellant, BENEFICIAL MORTGAGE CORPORATION; STATE OF OHIO, Department of Taxation; CITY OF TOLEDO, Division of Taxation, Defendants-Appellees.
No. 09-3848
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
May 16, 2011
11a0125p.06
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206. Appeal from the United States District Court for the Northern District of Ohio at Toledo. No. 07-00905—Jack Zouhary, District Judge.
COUNSEL
ON BRIEF: Mark R. McBride, Toledo, Ohio, for Appellant. John Schumann, Thomas J. Clark, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., Washington, D.C., Suzana Kukovec-Krasnicki, KEITH D. WEINER & ASSOCIATES CO., LPA, Cleveland, Ohio, for Appellees.
MURPHY, D. J., delivered the opinion of the court, in which GRIFFIN, J., joined. WHITE, J. (pp. 13–15) delivered a separate opinion concurring in part and dissenting in part.
STEPHEN J. MURPHY, III, District Judge. For ten years of a twelve-year period, Anyse Storey filed federal income tax returns that showed she owed taxes - but she failed to pay them. The United States brought an action to reduce to judgment Storey‘s tax liabilities for the ten years, and to foreclose on its tax liens placed on real property owned by Storey. Storey argued that her Chapter 7 bankruptcy petition discharged her tax liabilities for some of the years preceding the filing. The district court disagreed and entered judgment in favor of the United States, finding that Storey had willfully attempted to evade paying taxes for those years, preventing discharge of the obligations through her bankruptcy filing. Because the United States cannot carry its burden on the issue of willfulness, we REVERSE.
I.
During all times relevant to the present appeal, Storey was a practicing physician residing in Maumee, Ohio. For ten years out of a twelve-year span, she filed federal income tax returns that showed she owed federal income taxes, but she did not pay any of the taxes due. Specifically, Storey filed tax returns showing taxable income in 1994, 1995, 1996, 1997, 2000, 2001, 2002, 2003, 2004 and 2005, but has never paid any federal income tax for those years.
On March 15, 2002, Storey filed a Chapter 7 bankruptcy petition in the Northern District of Ohio. Neither Storey nor the United States filed an adversary complaint seeking a determination regarding the dischargeability of her federal income tax liabilities. In July 2002, the bankruptcy court entered an order of discharge pursuant to
Two and a half years later, on March 28, 2007, the United States brought the present action seeking to reduce to judgment Storey‘s federal income tax liabilities for the years 1994 through 1997 and 2000 through 2005, and to foreclose on its tax liens on
The district judge held a telephonic status conference on November 5, 2007, at which all parties not in default were present. Following the conference, the district judge issued an order in which he ruled that Northern District of Ohio General Order No. 84 did not grant jurisdiction to the bankruptcy court on the dischargeability of debts in Storey‘s 2002 bankruptcy. The order also set a deadline of November 16, 2007 for Storey “to file a brief with respect to the applicability of the discharge exception under Section 523,” and directed the United States to respond by December 14, 2007, with no replies permitted. R. 26.
Storey filed a brief identifying four issues she believed to be relevant to the proceedings: 1) whether the district court had jurisdiction over the action as it pertains to the bankruptcy discharge and its effect on the United States’ ability to obtain a personal judgment against Storey; 2) whether the income tax obligations owing at the time Storey filed her bankruptcy petition were discharged in the bankruptcy; 3) whether Storey had an obligation to file a complaint in the bankruptcy action to determine dischargeability of income tax obligations; and 4) whether the United States had violated the injunction in effect by virtue of the discharge in bankruptcy. Storey argued that her taxes for the years 1994 through 1997 were discharged by her 2002 bankruptcy under
After the government filed its brief, Storey sought leave to supplement her previously filed memorandum in support of discharge and for an enlargement of time. She argued that the district court should be afforded an opportunity to hear all arguments regarding whether the tax liabilities were discharged or are now dischargeable and what the appropriate forum should be for determining these issues. The district court denied Storey‘s motion in a marginal entry order and set the case for a telephonic status conference.
Following the off-the-record status conference, the district court issued an order ruling on the four points raised by Storey in her memorandum. On the question of whether Storey‘s income tax obligations were discharged in her 2002 bankruptcy, the district court held that
Storey timely appealed the district court‘s final judgment.
Storey challenges the district court‘s conclusion that her federal income tax obligations for the years 1994 through 1997 were not discharged in her 2002 bankruptcy proceedings. We agree with her position and reverse.1
A.
We address first the proper standard of review. The district court ruled in a summary fashion, but did not specify the procedural mechanism it used to do so. The order is titled “Order,” and mentions no rule of procedure. There were no factual findings. The court simply stated that “Defendant‘s tax obligations were exempted under
We agree that the proper way to view the district court‘s decision is as a sua sponte entry of summary judgment. Accordingly, we will review the district court‘s decision de novo. See Schreiber v. Moe, 596 F.3d 323, 329 (6th Cir. 2010). “Summary judgment is proper if the evidence, taken in the light most favorable to the nonmoving party, shows that there are no genuine issues of material fact and that the moving party is entitled to a judgment as a matter of law.” Id. (citation and internal quotation marks omitted). Summary judgment must be entered against “a party who fails to make a showing sufficient to establish the existence of an element essential to that party‘s case,
B.
A debtor filing a petition for bankruptcy under Chapter 7 of the Bankruptcy Code generally is granted discharge from all debts (including tax debts) that arose before the filing of the petition.
(a) a discharge under section 727 . . . of this title does not discharge an individual debtor from any debt—
(1) for a tax or customs duty—
. . .
(C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax
The analysis under
Here, non-payment of Storey‘s tax obligations is the only evidence relevant to the conduct requirement. Storey filed federal tax returns for the years in question, and there is no dispute that she did so timely and accurately. She simply failed to pay the taxes she owed. This is not enough by itself to render her tax debt nondischargeable. Unless her non-payment was “knowing and deliberate,” the tax obligations were discharged in her bankruptcy. See Stamper, 360 F.3d at 557 (noting that “a ‘knowing and deliberate’ nonpayment provides the basis for determining that the tax debt is non-dischargeable“); but see Haas v. IRS (In re Haas), 48 F.3d 1153, 1158 (11th Cir. 1995) (holding that mere non-payment is not sufficient to satisfy the conduct element of
There is little evidence to support a finding that Storey voluntarily and intentionally violated her known duty to pay taxes. The only argument made to the district court on this issue was in response to the court‘s request for briefing, where the United States asserted: “[t]he United States maintains that Storey‘s tax liabilities are nondischargeable based upon her willful attempt to evade or defeat her taxes.” United States Resp. Br. 5 (R. 32). The United States alleged no facts to support its position, despite being yoked with the burden of proof on this issue. On appeal, the United States adds that Storey‘s purchase of the Morningdew Property in 1994 — the very year she stopped paying taxes — demonstrates a voluntary and intentional choice to evade her tax obligations. Not so. There is no indication that the property is more lavish than Storey‘s previous residence or that the home was an unnecessary expense, purchased as an alternative to paying future tax obligations. Nor is there any evidence that when Storey purchased the home, she was even aware she would later become unable to pay her taxes. If the purchase were made in the years after Storey stopped paying taxes, there might be reason to suspect an intent to evade her tax obligations. See, e.g., United States v. Mitchell (In re Mitchell), 633 F.3d 1319, 1328 (11th Cir. 2011). But the home was purchased at the beginning of (and perhaps before — we cannot be sure) Storey‘s financial difficulties. Without facts or evidence — materials the United States had the burden of producing — there is only speculation. “Mere speculation is insufficient to create a preponderance of the evidence.” United States v. Burke, 252 F. App’x 49, 54 (6th Cir. 2007).
The United States relies heavily on the decision of the bankruptcy court denying Storey‘s request for a discharge of her student loan obligations. The published decision was not expressly considered by the district court. The bankruptcy court set forth the following facts as undisputed:
The Debtor, who is presently 50 years of age, is a licensed physician. The Debtor has practiced medicine for the past 15 years, and presently specializes in the field of urology. At some time in the not too distant future, the Debtor will become “board certified” in this specialty. At the present time, the Debtor practices solo, employing three part-time staff.
Storey v. Nat‘l Enter. Sys. (In re Storey), 312 B.R. 867, 870 (Bankr. N.D. Ohio 2004). The bankruptcy court further found that “the Debtor‘s present annual income is in the $50,000.00 range. In the past, however, the Debtor earned as high as $96,000.00 per year.” Id. at 873. It found that Storey had recently declined to take a job that paid $110,000 per year, and Storey stated that she could work longer hours if needed. Id. at 872-73. The court also noted that Storey‘s husband lived with her but did not contribute
We think it inappropriate to consider the bankruptcy court‘s decision here. The treatment of student loans in bankruptcy is distinctive, and differs significantly from the treatment of tax obligations. For one, there is a presumption that student loan debts are non-dischargeable and therefore the burden of establishing a discharge of student loans is on the debtor, by a preponderance of the evidence. Barrett v. Educ. Credit Mgmt. Corp. (In re Barrett), 487 F.3d 353, 358-59 (6th Cir. 2007). On the other hand, in the case of pre-petition tax debts, the presumption is that such debts are dischargeable, and therefore the government bears the burden of establishing otherwise by a preponderance of the evidence. Stamper, 360 F.3d at 557. Additionally, in determining whether student loan debts are dischargeable, a court must determine whether repayment of the loans would cause undue hardship, which is forward-looking. See Tenn. Student Assistance Corp. v. Hornsby (In re Hornsby), 144 F.3d 433, 437 (6th Cir. 1998) (discussing the widely-accepted three-part test for undue hardship). On the other hand, the question of whether the failure to pay taxes was willful looks backwards in time to the conduct and state of mind of the debtor at the time he or she failed to pay the taxes. Storey‘s failure to carry her burden to show an undue hardship in the student loan context cannot create a windfall to the United States by establishing willful evasion as a matter of law.
But even indulging the United States’ request that we consider the facts contained in the bankruptcy court‘s decision does not change the result here. While it was undisputed that Storey‘s income was in the $50,000 range and that she had in the past made as much as $96,000 per year, no evidence was offered regarding why or when
Thus, we conclude that the district court should not have effectively granted summary judgment to the United States on the dischargeability issue. The United States failed to offer sufficient evidence to rebut the presumption that the tax obligations were discharged in Storey‘s bankruptcy proceedings, or that she is anything other than “the honest but unfortunate debtor.” Grogan, 498 U.S. at 286-87 (citation and internal quotation marks omitted). Moreover, we see no reason to remand so the United States can offer additional evidence. For one, the United States has not requested a remand as an alternative to affirming. More importantly, by arguing on appeal that the district court provided both parties “a fair opportunity to present their positions on this critical legal issue,” United States Br. 24-25, the United States is foreclosed from arguing that the district court did not give the United States ample opportunity to meet its burden under
Evidence did not support the district court‘s entry of partial judgment against Storey on the issue of willful evasion of her federal income tax obligations for years 1994 through 1997. The record does not support a finding that Storey willfully attempted to evade or defeat her federal income taxes for these years. The presumption that the obligations were discharged in bankruptcy thus remains unrebutted. Accordingly, partial judgment must be entered in favor of Storey with respect to her tax obligations for years 1994 through 1997. We REVERSE and REMAND to the district court for proceedings consistent with this opinion.
HELENE N. WHITE, Circuit Judge (concurring in part and dissenting in part). To render Storey‘s tax debt nondischargeable, the government must prove by a preponderance of the evidence that she attempted a “voluntary, conscious, and intentional evasion” of her responsibility to pay taxes. Stamper, 360 F.3d at 557;
As the majority observes, “[n]onpayment alone is insufficient to bar discharge of a tax obligation . . . .” Stamper, 360 F.3d at 557; see also Myers, 216 B.R. at 405; Birkenstock, 87 F.3d at 951. To render the tax debts nondischargeable, the government must make the additional showing that Storey had the requisite mental state: that she “voluntarily, consciously, and knowingly evaded payment.” Stamper, 360 F.3d at 558. There was little evidence or argument on this element in the proceedings below. The majority concludes that Storey‘s buying the Morningdew Property and the findings of the bankruptcy court in the student-loan-discharge matter are insufficient to raise a genuine issue of material fact regarding the mental-state element of
Cases construing
Because neither party established an entitlement to summary judgment, and the parties did not submit the case to the court for judgment on the facts, I would remand for further proceedings. The government should be permitted to present evidence of how much Storey earned and what she did with her earnings, as well as other evidence