Opinion
Case No. 17-31030 Adv. No. 21-3025
2022-02-08
IN RE: GYPC, INC., Debtor. Donald F. Harker, III, Chapter 7 Trustee, Plaintiff, v. GYPC, Inc. et al., Defendants.
J. Michael Debbeler, Jeffrey M. Hendricks, Graydon Head & Ritchey, LLP, Cincinnati, OH, for Plaintiff. Philip Bednar, US Department of Justice, Tax Division, Washington, DC, for Defendant United States of America by and through the Internal Revenue Service. Spencer Shields Cowan, Aaron Mark Herzig, Michael Meyer, Taft Stettinius & Hollister LLP, W. Timothy Miller, Cincinnati, OH, for Defendants Christopher Cummings, Eric Webb.
J. Michael Debbeler, Jeffrey M. Hendricks, Graydon Head & Ritchey, LLP, Cincinnati, OH, for Plaintiff.
Philip Bednar, US Department of Justice, Tax Division, Washington, DC, for Defendant United States of America by and through the Internal Revenue Service.
Spencer Shields Cowan, Aaron Mark Herzig, Michael Meyer, Taft Stettinius & Hollister LLP, W. Timothy Miller, Cincinnati, OH, for Defendants Christopher Cummings, Eric Webb.
DECISION DENYING THE MOTION TO DISMISS OF DEFENDANTS CHRISTOPHER F. CUMMINGS AND ERIC WEBB (DOC. 16)
Guy R. Humphrey, United States Bankruptcy Judge Procedural and Factual Background
On October 1, 2021 the Chapter 7 Trustee, Donald F. Harker, III (the "Trustee"), commenced an adversary proceeding against GYPC, Inc. ("GYPC"), Christopher F. Cummings ("Cummings"), Eric Webb ("Webb"), and the United States of America. Doc. 1. In his complaint, the Trustee pleads a single count for the avoidance of post-petition transfers pursuant to 11 U.S.C. § 549. Specifically, the Trustee alleges the filing of two post-petition C Corporation tax returns should be avoided as unauthorized post-petition transfers. The Trustee asserts that those tax returns were filed without his authority. Cummings and Webb, the only two shareholders of GYPC (collectively, the "Shareholders"), have moved to dismiss this adversary proceeding for failure to state a claim upon which relief may be granted, and also argue the complaint should be dismissed because this court lacks subject matter jurisdiction.
The United States was dismissed through an agreed order, without prejudice. Doc. 17. GYPC has not filed a Rule 12 response to the complaint.
GYPC filed a Chapter 11 petition on March 30, 2017. Estate Doc. 1. According to the complaint, Cummings released his rights in a Florida revocable trust on February 1, 2017, and this action caused a change to GYPC's tax status from a Subchapter S corporation to a C corporation. Doc. 1 at ¶ 10. Before the case converted to Chapter 7, GYPC filed both its 2016 tax return and a partial year return covering the January 2017 pre-conversion period. Id. The filings of these pre-conversion S Corporation tax returns are not at issue in this adversary proceeding. The Chapter 11 case was converted to Chapter 7 on August 16, 2019. Estate Doc. 219. However, the Trustee is seeking to avoid the C Corporation returns that he alleges were filed post-conversion without his "knowledge or authority." Doc. 1 at ¶ 10. Specifically, he seeks to avoid the C Corporation GYPC tax returns for the partial year February 1 through December 31, 2017 and for the complete 2018 tax year (collectively, the "Post-Conversion Filed Returns"). Id. at ¶ 21. The Post-Conversion Filed Returns were filed on October 11, 2019. Id. at ¶ 10.
This court determined in separate adversary proceedings that this pre-petition change in GYPC's tax status could not be avoided by the Trustee. Adv. No. 19-3046 (Doc. 69 at 11-14); Adv. No. 19-3047 (Doc. 70 at 11-14). Harker v. Cummings (In re GYPC, Inc. ), 2020 Bankr. LEXIS 2384, at *16-23 (Bankr. S.D. Ohio Aug. 4, 2020).
In 2020 the United States Internal Revenue Service ("IRS") initially issued a notice that it was not accepting the Post-Conversion Filed Returns. Id. Subsequently, on August 31, 2020, Cummings’ counsel notified the IRS that GYPC's S Corporation status had been terminated. Id. On September 4, 2020, apparently in response to the IRS's initial notices, the Trustee filed a 2019 tax return for GYPC as an S Corporation return. Id. But the IRS issued a new notice on September 28, 2020 that GYPC's S Corporation status was terminated as of February 1, 2017. Id. The IRS also filed a claim in GYPC's case, subsequently amended to $6,419,715.22, as the pre-petition termination of GYPC's S Corporation status transferred tax liability from the Shareholders to GYPC's bankruptcy estate. POC 35-1, 35-2.
The Trustee amended the Post-Conversion Filed Returns, the 2016 S Corporation Return, and the January 2017 S Corporation return. In re GYPC Inc. , Case No. 17-31030, 2021 WL 4618410, at *2, 2021 Bankr. LEXIS 2817, at *1 (Bankr. S.D. Ohio Oct. 5, 2021). These amended returns apparently moved deferred income from tax year 2017 back to GYPC's pre-petition 2016 S Corporation return. Id. The result of such amended returns, if ultimately accepted, would be the elimination of the GYPC bankruptcy estate tax liability for that income, with the tax liability flowing back to the Shareholders. Id. The court previously determined that neither Bankruptcy Code § 105 nor § 505(a)(1) are proper vehicles to determine the authority of the Chapter 7 Trustee to amend the S Corporation tax returns filed by the Shareholders, unless raised as part of the larger question § 505(a)(1) addresses, "the amount or legality of any tax." 2021 WL 4618410, at *2-4, 2021 Bankr. LEXIS 2817, at *3–5.
Motion to Dismiss for Lack of Subject Matter Jurisdiction
The initial question for the court, in this litigation or any other, is whether this bankruptcy court has subject matter jurisdiction to determine this adversary proceeding. Answers in Genesis of Ky., Inc. v. Creation Ministries Int'l, Ltd. , 556 F.3d 459, 465 (6th Cir. 2009) ("[F]ederal courts have a duty to consider their subject matter jurisdiction in regard to every case and may raise the issue sua sponte. "). The Shareholders have raised this issue in their motion to dismiss. See Fed. R. Civ. P. 12(b)(1) (made applicable by Fed. R. Bankr. P. 7012(b) ) (party may move to dismiss for "lack of subject-matter jurisdiction"). But even if the Shareholders had not raised it, this court has an ongoing and independent requirement to scrutinize its jurisdiction. Fed. R. Civ. P. 12(h)(3) (made applicable by Fed. R. Bankr. P. 7012(b) ) ("If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action."). Although the Shareholders are the parties moving to dismiss, the burden to establish subject-matter jurisdiction rests with the Trustee. Rogers v. Stratton Indus., Inc. , 798 F.2d 913, 915 (6th Cir. 1986) (cited in Rhiel v. Cent. Mortg. Co. (In re Kebe ), 444 B.R. 871, 875 (Bankr. S.D. Ohio 2011) ).
The Shareholders argue that this court does not have subject matter jurisdiction because federal courts are generally forbidden from entering declaratory relief on tax matters. The Declaratory Judgment Act states:
In a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1986, a proceeding under section 505 or 1146 of title 11 , or in any civil action involving an antidumping or countervailing duty proceeding regarding a class or kind of merchandise of a free trade area country (as defined in section 516A(f)(9) of the Tariff Act of 1930), as determined by the administering authority, any court of the United States, upon the filing of an appropriate pleading, may declare the rights and
other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.
28 U.S.C. § 2201(a) (emphasis added). The parties do not dispute that the two exceptions relevant to bankruptcy courts do not apply.
Section 1146 of the Bankruptcy Code only applies in Chapter 11, and § 505 is limited to the "amount or legality of any tax." 11 U.S.C. § 505(a)(1). See also In re GYPC Inc. , Case No. 17-31030, 2021 WL 4618410, 2021 Bankr. LEXIS 2817 (Bankr. S.D. Ohio Oct. 5, 2021) (order denying request by the Chapter 7 trustee to declare pursuant to §§ 505(a)(1) and/or § 105 of the Bankruptcy Code that the Chapter 7 Trustee had authority to amend tax returns filed by the shareholders of an S Corporation). See also In re UAL Corp. , 336 B.R. 370 (Bankr. N.D. Ill. 2006) (finding that the tax consequences of Chapter 11 plans do not meet the exceptions of §§ 505 and 1146 ).
The Trustee responds that he is not seeking relief covered by the Declaratory Judgment Act (the "DJA") and this adversary proceeding is limited to a straight-forward attempt to avoid a post-petition transfer under Bankruptcy Code § 549. If that is the only interpretation of the complaint, the court's subject matter jurisdiction is clear. See In re Still v. Rossville (In re Chattanooga Wholesale Antiques, Inc. ), 930 F.2d 458, 461 n.2 (6th Cir. 1991) (quoted in Guinn v. Oakwood Properties, Inc. (In re Oakwood Markets, Inc. ), 203 F.3d 406 (6th Cir. 2000) (" 11 U.S.C. § 549(a) permits a trustee to avoid a post-petition transfer of property of the estate that occurs after commencement of the case and is not authorized by the Bankruptcy Code or by the Court.")). But the Shareholders point out that the complaint, in the "wherefore" clause, seeks a "declaration" that the filing of the post-petition, post-conversion tax returns were "not authorized and void," or alternatively to declare that the Trustee's amended returns "shall be considered the [tax] returns" of the Debtor. Doc. 1 at 7.
As an initial matter, the DJA "authorizes courts to issue declaratory judgments except with respect to Federal taxes." Torp. v. United States, No. 18-2114, 2019 WL 3402472, at *2, 2019 U.S. App. LEXIS 20032, at *4 (6th Cir. July 3, 2019) (cleaned up). See also Hollar v. United States (In re Hollar ), Adv. No. 94-6042, 1995 WL 753833, at *1-2, 1995 Bankr. LEXIS 1199, at *2-5 (Bankr. M.D.N.C. Aug. 9, 1995) (count seeking relief "with respect to federal taxes" under the DJA must be dismissed). This exception for disputes involving federal taxes is jurisdictional in nature. Rivero v. Fidelity Invs., Inc., 1 F.4th 340 (5th Cir. 2021). The DJA operates along with the Anti-Injunction Act, which provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person." Id. at *1-2 (quoting 26 U.S.C. § 7421(a) ). See Mine Workers 1992, Benefit Plan v. Leckie Smokeless Coal Co. (In re Leckie Smokeless Coal Co. ), 99 F.3d 573, 583-84 (4th Cir. 1996) ("The purposes of the two statutory provisions are to allow the Federal Government to assess and collect allegedly due taxes without judicial interference and to compel taxpayers to raise their objections to collected taxes in suits for refunds.").
The complaint, although perhaps not drafted with ideal precision, does not seek a declaratory judgment. The first statement seeking a "declaration" merely re-states the substantive elements of the § 549 claim allegations of the complaint. The second statement seeks a "declaration" addressing the Trustee's right to file or amend the C Corporation's returns if the original returns are avoided. While that statement is not a necessary finding to determine the § 549 claim, it appears to be the logical result if the avoidance of the Post-Conversion Filed Returns occurs, due to the requirement that a Chapter 7 Trustee file post-petition tax returns for C Corporations filed as Chapter 7 cases and presumably in cases converted to Chapter 7. 26 U.S.C. § 6012(b)(3) and (4). Nevertheless, the court is interpreting the complaint to only require the adjudication of the findings necessary to reach the § 549 question.
Of course, the Trustee's position has been that the Trustee is authorized to file or amend any and all tax returns of a corporate debtor during the pendency of a Chapter 7 case. At least one appellate decision appears to agree with the Trustee generally but this court expresses no opinion at this time on that decision. See Kipperman v. I.R.S. (In re 800IDEAS.COM ), 496 B.R. 165, 172 (B.A.P. 9th Cir. 2013). Additionally, the Shareholders’ argument that the Trustee is prohibited "from carrying-back or carry-forward losses between C corporation taxable years and S Corporation taxable years" is not before the court. See Arrowsmith v. United States (In re Health Diagnostic Lab., Inc. ), 578 B.R. 552, 565 n.23 (Bankr. E.D. Va. 2017) (noting that such a procedure violates 26 U.S.C. § 1371(b) ).
The complaint does not seek a declaratory judgment any more than a § 523(a)(1) proceeding seeks a determination or "declaration" of whether taxes for an individual debtor are dischargeable. Bostwick v. United States (In re Bostwick ), 521 F.2d 741 (8th Cir. 1975) (In a decision governed by the Bankruptcy Act, DJA did not prohibit bankruptcy court from determining dischargeability of a federal tax debt); McKenzie v. United States , 536 F.2d 726 (7th Cir. 1976) (similar). See also Parker v. Saunders (In re Bakersfield Westar, Inc. ), 226 B.R. 227, 238-39 (B.A.P. 9th Cir. 1998) (DJA does not prohibit pursuing a fraudulent transfer action under §§ 548 and 550 of the Bankruptcy Code to avoid a subchapter S revocation). Another court has found that DJA also does not prohibit bifurcating a claim of the IRS under § 506 because it does not include a declaratory judgment about the future collection of taxes. Berkebile v. Ocwen Loan Servicing, LLC (In re Berkebile ), 444 B.R. 326, 333-34 (Bankr. W.D. Pa. 2011). See also Sprout v. I.R.S. (In re Sprout) , Adv. No. 19-2113, 2020 WL 2527376, at *10-11, 2020 Bankr. LEXIS 1305, at *27-30 (Bankr. S.D. Ohio May 15, 2020) (DJA does not prohibit a declaration about whether a tax liability is dischargeable and such determination is permitted under § 505(a) ). In these examples, substantive Bankruptcy Code sections, such as § 549, are not rendered inoperable by the application of the DJA.
As a matter of policy, the issues of the appropriate party to file a tax return and whether a tax return filing can be avoided under the Bankruptcy Code are not the type of problems that the DJA or the Anti-Injunction Act seek to remove from bankruptcy court jurisdiction. Rather, the intent of the DJA and the Anti-Injunction Act is to ensure courts do not interfere with the ordinary collection of federal taxes. Leckie Smokeless Coal , 99 F.3d at 583-84. See e.g. In re Poehlmann , No. 05-37386 HCD, 2006 WL 1605422, at *2 (Bankr. N.D. Ind. Mar. 28, 2016) (under the DJA, a court cannot issue a declaratory judgment that the debtors "are authorized to stop their 401(k) repayments without the triggering of a taxable event."). These issues are typically raised by the United States, and the court notes that party sought and received dismissal without raising these concerns.
For all these reasons, the court determines that the complaint does not violate any jurisdictional barrier imposed by the DJA. The DJA also does not create an independent basis for subject-matter jurisdiction. James v. D&J Enter. of Ohio. , Case No. 2:19-cv-2, 2019 WL 2141830, at *3, 2019 U.S. Dist. LEXIS 82830, at *7-8 (S.D. Ohio May 16, 2019). Instead, this court's jurisdiction exists under 28 U.S.C. § 1334(b) and the Standing Order of Reference of the District Court for the Southern District of Ohio. Amended General Order 05-02. Further, this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (O), and this court has constitutional authority to enter final judgment. Jones v. Brand (In re Belmonte ), 551 B.R. 723, 726 (Bankr. E.D.N.Y. 2016).
Motion to Dismiss for Failure to State a Claim
The Shareholders also argue the complaint fails to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6) (made applicable by Fed. R. Bankr. P. 7012(b) ). Pleadings must contain "a short and plain statement of the claim showing that the pleader is entitled to relief[.]" Fed. R. Civ. P. 8(a)(2) (made applicable by Fed. R. Bankr. P. 7008 ). A complaint may not just list the elements of a cause of action but must contain sufficient factual allegations to state a plausible claim. Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
The first question is whether the filing of the Post-Conversion Filed Returns for GYPC constitutes potential avoidable post-petition transfers. With exceptions not relevant here, § 549 of the Bankruptcy Code provides:
[T]he trustee may avoid any transfer of property of the estate—
(1) that occurs after the commencement of the case; and
(2) (A) that is authorized only under 303(f) or 542(c) of this title; or
(B) that is not authorized under this title or by this court.
11 U.S.C. § 549(a). A "transfer" is defined to include "each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with—(i) property; or (ii) an interest in property." 11 U.S.C. § 101(54)(D). Meoli v. Huntington Nat'l Bank , 848 F.3d 716, 728 n.6 (6th Cir. 2017) ("The Code defines a ‘transfer’ very broadly."); Gibson v. United States (In re Russell ), 927 F.2d 413 (8th Cir. 1991) (The term "transfer" was intended be Congress to be "as broad as possible."). See also Levine v. Telco Sys. (In re World Access, Inc. ), 324 B.R. 662, 687 (Bankr. N.D. Ill. 2005) (failure of affiliate to return tax overpayment refund to debtor that paid affiliate's taxes pursuant to a contractual obligation was an unauthorized transfer of estate property).
The Shareholders argue that the complaint does not allege a transfer of estate property, citing Official Comm. Of Unsecured Creditors v. Forman (In re Forman Enters. ), 281 B.R. 600 (Bankr. W.D. Pa. 2002). In Forman , the court determined that a net operating loss or NOL of an S Corporation is not a property interest. Id. at 611-13. But Forman recognizes that for a C Corporation, "the estate created contained all of their assets. Included therein were their tax attributes, including NOLs." Id. at 612. But the Shareholders further argue that, unlike cases like Forman , which included a specific NOL, that "[t]he Trustee simply objects to how Debtor recognized its income, without alleging any facts to show some transfer of property ." Doc. 16 at 14. The Shareholders also note that unlike a specific NOL or tax refund, the Trustee only refers to the filing of the returns, and the "tax decisions/implications therein." But the tax attributes of a C Corporation fit within the very broad definition of estate property, and, again, it appears uncontroversial that the Trustee would be required to authorize the filing of C Corporation returns, at least following the conversion of the case. Forman , 281 B.R. at 612. The authorization issue will be discussed further below, but the court finds compelling the unassailable fact that the filing of C Corporation Returns in a Chapter 7 case has a significant effect on the estate's net assets and is therefore within the broad definition of estate property. And as a corollary to that point, the filing of a return is a transfer because it disposes of an estate asset or results in the disposing of or parting with an interest in property.
The Shareholders also complain the complaint fails to meet basic pleading requirements because it does not seek a sum certain. The court does not find it necessary that the complaint plead a sum certain amount as a requirement to plead a post-petition transfer and the Shareholders do not cite any case law for that proposition. Moreover, as a practical matter, it appears the potential amount at issue from this avoidance action is known to the Shareholders and the Trustee because the parties have knowledge of all the tax returns that may be relevant.
The Shareholders also argue that the Trustee's complaint is another attempt "to unwind the Defendant's legitimate, pre-bankruptcy conversion of the Debtor's tax status from an S Corporation to a C Corporation." Doc. 20 at 7. But this complaint does not re-raise that issue. Instead, it asks whether the filing of the tax returns following conversion of the case to Chapter 7 without the Trustee's permission should be avoided under § 549. Specifically, the Shareholders state that the Trustee's action is precluded by the law of the case doctrine. The law of the case doctrine requires that "[i]ssues decided at an early stage of the litigation, either explicitly or by necessary inference from the disposition, constitute the law of the case." EEOC v. United Ass'n Local No. 120 , 235 F.3d 244, 249 (6th Cir. 2000) (cleaned up). It also appears to be applied in the context of appellate determinations, or at least decisions involving a different judge or tribunal. See Bowles v. Russell , 432 F.3d 668, 676 (6th Cir. 2005) ("The gist of the [law of the case] doctrine is that once an appellate court either expressly or by necessary implication decides an issue, the issue will be binding upon all subsequent proceedings in the same case.") (citations omitted); Halbert v. Taunt (In re MTG, Inc. ), 291 B.R. 694, 697-698 (E.D. Mich. 2003) (explaining the principles of the law of the case doctrine); Wright & Miller, 18B Federal Prac. and Proc., Juris. § 4478 (2d ed. April 2021). But that aside, the only relief the Trustee could receive under § 549 is to avoid the filing of the Post-Conversion Filed Returns. It is certainly fair to say that the Trustee's actions represent a new line of attack against the negative result of the S to C Conversion for the GYPC estate. Nevertheless, it is a different legal issue, and one that has no effect on the S to C conversion determination. Unless an appellate court ultimately disagrees, the S to C conversion cannot be undone by the Trustee, but that issue does not resolve this adversary proceeding.
Effect of the Approval of the Final Brady Ware Fee Application
Brady Ware & Schoenfeld, Inc. ("Brady Ware") acted as the accountants for GYPC during the Chapter 11. Brady Ware was not retained by the Trustee during the Chapter 7.
On November 14, 2019, the Law Offices of Ira H. Thomsen (the "Thomsen Law Firm") filed (and presumably helped prepare) the final fee application on behalf of Brady Ware. Estate Doc. 247. The Thomsen Law Firm acted as debtor counsel during the Chapter 11, and, after the conversion, as special counsel for the Trustee. The fees, which totaled $41,098, were approved without objection by an order entered on March 31, 2020. Estate Doc. 284. The fees were paid the same day the order was entered. Estate Doc. 414 at 4. The final Brady Ware fee application included the time spent preparing the Post-Conversion Filed Returns.
The Shareholders argue that the approval of the final Brady Ware fee application, without objection by the Trustee, precludes the Trustee from seeking to avoid the same tax returns Brady Ware was compensated to prepare. The Trustee responds that the Brady Ware final fee application was for, among other work, the preparation of the tax returns during the pendency of the Chapter 11, and the issue in this adversary proceeding does not concern the work performed prior to the conversion to Chapter 7, but as stated, concerns the filing of the Post-Conversion Filed Returns without the authority of the Trustee.
"Claim preclusion prevents parties from raising issues that could have been raised and decided in a prior action—even if they were not actually litigated." Lucky Brand Dungarees, Inc. v. Marcel Fashions Grp. , 590 U.S. ––––, 140 S. Ct. 1589, 1594, 206 L.Ed.2d 893 (2020). In the Sixth Circuit, claim preclusion has four elements: "(1) a final decision on the merits by a court of competent jurisdiction; (2) a subsequent action between the same parties or their privies; (3) an issue in the subsequent action which was litigated or which should have been litigated in the prior action; and (4) an identity of the causes of action." Trs. of Operating Eng'rs Loc. 324 Pension Fund v. Bourdow Contracting, Inc. , 919 F.3d 368, 380 (6th Cir. 2019) (quoting Browning v. Levy , 283 F.3d 761, 771 (6th Cir. 2002) ).
Courts have found that res judicata (or claim preclusion) bars malpractice actions against professionals when the final fee application covering the professionals’ work has been approved. See Grausz v. Englander , 321 F.3d 467, 472-76 (4th Cir. 2003) (malpractice action by debtor against law firm that represent him barred by res judicata after the bankruptcy court approved the final fee application, without objection); Iannochino v. Rodolakis (In re Iannochino ), 242 F.3d 36, 41-49 (1st Cir. 2001) (similar); Oscherow v. Ernst & Young, LLP (In re Intelogic Trance, Inc. ), 200 F.3d 382, 386-91 (5th Cir. 2000) (final fee award allowing fees for accountant in Chapter 11 precluded, post-conversion, the Chapter 7 Trustee from pursuing a claim for professional malpractice); AASI Creditor Liquidating Trust v. Raymond James & Assocs., Inc. (In re All Amer. Semiconductor, Inc. ), 427 B.R. 559, 569-72 (Bankr. S.D. Fla. 2010) (similar).
Certainly, the failure of the Trustee to object to the final Brady Ware fee application is a fact of which the court may take judicial notice and may be relevant to determining whether the Trustee did in fact consent to the filing of the Post-Conversion Filed Returns. Although the Brady Ware fees were for work completed prior to the conversion of the case to Chapter 7, the order approving the final Brady Ware fee application was entered following the conversion to Chapter 7. That said, the court cannot resolve this litigation based upon claim preclusion. The only element of claim preclusion met is that this court entered a final order approving the Brady Ware final fee application within its jurisdiction. This § 549 proceeding is not among the same parties or privies. In addition, the allegation that the Post-Conversion Filed Returns were filed without the Trustee's authorization was not one that was required to be litigated to determine the Brady Ware final fee application. Unlike the professional malpractice cases cited by the Shareholders, in which the accounting work itself was at issue, the issues lack sufficient identity to justify an application of claim preclusion.
The Shareholders also raise the potentially relevant fact that the Brady Ware first interim fee application (estate doc. 287) shows communication between the Thomsen Law Firm and the Trustee about the Post-Conversion Filed Returns. Doc. 16 at 8.
Conclusion
For all these reasons, the Shareholders’ motion to dismiss is denied. The court will enter a separate order consistent with this decision.