Opinion
Bankruptcy Case No. GG99-7383, File No. 1:03-CV-799.
October 13, 2004
MEMORANDUM OPINION AND ORDER
The Internal Revenue Service ("IRS"), pursuant to Bankruptcy Rule 8015 and 8011, seeks a partial rehearing to address a potential dispute over the meaning of the Court's opinion issued in this case September 29, 2004. The IRS asserts that the Court's opinion leaves open the issue of whether the IRS is entitled to the remaining sale proceeds from the sale of the 25 Carlton N.E., Grand Rapids, MI property (the "Carlton Property") after the Trustee's administrative fees and expenses and the $5,000 Carve-Out Agreement are paid. The Carlton Property was sold in connection with the bankruptcy estate of Scott James Fortier. It is necessary for this Court to resolve this issue so that there is no confusion on appeal as to whether the order of this Court was interlocutory and thus non-appealable.
I.
It is not necessary to recount the long history of this proceeding. A complete recitation of the facts can be found in the Court's September 29, 2004 opinion. Briefly, in 2000, the Trustee of Fortier's personal bankruptcy filed a motion to sell the Carlton Property, an asset of Wolverine Litho, in order to realize Fortier's 100% stock interest in Wolverine Litho. As part of the motion, the Trustee and the IRS entered into a settlement agreement in which the balance of the proceeds from the sale, after subtracting the Trustee's expenses, would be turned over to the IRS. The motion also authorized an immediate distribution of $30,000 to the IRS to satisfy corporate tax liens on the Carlton Property. In addition, the Trustee requested approval of a Carve-Out Agreement, hereby the Trustee would hold, for the benefit of Fortier's creditors, $5,000 of the purchase price. The sale of the Carlton Property, distribution to the IRS, and the Carve-Out Agreement were approved by the Bankruptcy Court by order dated February 29, 2000 ("Sale Order"). The Sale Order specifically provided that after payment of the Trustee's administrative fees and expenses, and after subtraction of the $5,000 carve-out amount, the remaining sale proceeds would be turned over to the IRS. Over a year after the Sale Order was entered, Deborah Vickers filed a tardy proof of claim against Fortier's estate based on a substantial child support arrearage owed to Vickers. In 2003, the Trustee moved for turnover of the $30,000 distributed to the IRS claiming that Vickers was entitled to subordinate the tax lien. The Bankruptcy Court granted the Trustee's motion and ordered the IRS to disgorge the $30,000 distributed to the IRS according to the Sale Order. The IRS appealed the Bankruptcy Court order.
In an opinion dated September 29, 2004, this Court held that the Sale Order was a final order that must be given res judicata effect when it was not appealed. Accordingly, the Court ordered that the IRS was not required to disgorge the $30,000 distribution and that Vickers was bound by the Sale Order, and only entitled to share in the amount "carved out" of the proceeds from the sale of the Carlton Property. In this motion, the IRS requests that the Court clarify its opinion to include an order granting the IRS the remaining proceeds (approximately $4,000) from the Carlton Property left over after the Trustee's expenses, and Carve-Out Agreement.
As stated in the Court's previous opinion, the Sale Order was a final order because it disposed of a discrete dispute within Fortier's larger bankruptcy case. September 29, 2004 Opinion at 5. In addition, the Sale Order was binding upon Vickers because the Trustee acted as a fiduciary for all creditors, including Vickers, in negotiating the agreement with the IRS. Id., Ford Motor Credit Co. v. Weaver, 680 F.2d 451, 462 (6th Cir. 1982); In re Indian Motorcycle Co., 289 B.R. 269, 281 (1st Cir. BAP 2003). Since Vickers did not seek relief from the Sale Order within one year, she was barred by FED. R. CIV. P. 60(b) and res judicata from challenging the distribution to the IRS made pursuant to the Sale Order. September 29, 2004 Opinion at 7-8.
The Court's holding in the September 29, 2004 Opinion barring Vickers from challenging the Sale Order based on res judicata and Rule 60(b) includes the provision of the Sale Order giving the IRS the remaining proceeds of the sale after the Trustee's expenses and the carve-out amount have been distributed. The Sale Order was a final order. See In re Dow Corning, 86 F.3d 482, 488 (6th Cir. 1996) (quoting In re Cottrell, 876 F.2d 540, 541-42 (6th Cir. 1989)). One of the provisions of the Sale Order was that the IRS would be entitled to any excess proceeds from the sale after the Carve-Out Agreement and administrative fees and expenses of the Trustee and his counsel. Vickers did not file a proof of claim until one year after entry of the Sale Order and the motion to require the IRS to turn over the $30,000 distribution was not filed until 2003. This was too late to get relief from the final order under Rule 60(b). Any objection that Vickers may have to the $30,000 distribution to the IRS or the distribution of the remaining proceeds of the sale to the IRS is now barred due to res judicata and Rule 60(b). Whether she challenges the $30,000 distribution or the distribution of remaining proceeds to the IRS, the answer is the same. The Sale Order specifically addressed these issues. The Sale Order was a final order which could only be modified pursuant to Rule 60(b). When modification was not sought within one year, res judicata barred any subsequent challenge to the Sale Order.
The $30,000 distribution, the Carve-Out Agreement, and the distribution of any remaining proceeds to the IRS were all part of the same final order. As stated in the Court's previous opinion, Vickers is now barred from challenging the Sale Order. September 29, 2004 Opinion at 5, 7-8. This includes the $30,000 distribution, the $5,000 Carve-Out Agreement, and the distribution of the approximately $4,000 in proceeds. Accordingly, the Court holds that the Sale Order was final as to the $30,000 distribution to the IRS, and the Carve-Out Agreement as well as the direction to pay the IRS any proceeds remaining after the subtraction of the $5,000 carve out and Trustee's administrative fees and expenses.
For the reasons stated above, IT IS HEREBY ORDERED that Appellant's Motion for Interlocutory Relief [docket # 21] is GRANTED and that the case be REMANDED in conjunction with this Court's September 29, 2004 opinion to the Bankruptcy Court to enter judgment according to the opinion and the memorandum opinion and order entered on this date.