Opinion
Bankruptcy No. 19 B 10236
2023-12-22
IN RE: J PUBLICATION COMPANY, formerly known as Johnson Publishing Company, LLC, Debtor.
Howard L. Adelman, Steven B. Chaiken, Adelman & Gettleman Ltd., Chicago, IL, for Debtor. Ha M. Nguyen, Office of the U.S. Trustee, Chicago, IL, for U.S. Trustee. Gutnicki LLP, Skokie, IL, Michael Leifman, Vedder Price, P.C., Chicago, IL, N. Neville Reid, Ryan T. Schultz, Steven L. Vanderporten, Brian Wilson, Fox, Swibel, Levin & Carroll, LLP, Chicago, IL, for Trustee.
Howard L. Adelman, Steven B. Chaiken, Adelman & Gettleman Ltd., Chicago, IL, for Debtor. Ha M. Nguyen, Office of the U.S. Trustee, Chicago, IL, for U.S. Trustee. Gutnicki LLP, Skokie, IL, Michael Leifman, Vedder Price, P.C., Chicago, IL, N. Neville Reid, Ryan T. Schultz, Steven L. Vanderporten, Brian Wilson, Fox, Swibel, Levin & Carroll, LLP, Chicago, IL, for Trustee. ORDER DENYING AMENDED MOTION TO DETERMINE LIABILITY (DOCKET NO. 616) Donald R. Cassling, United States Bankruptcy Judge
This matter is before the Court on the motion of Miriam Stein Granek ("Stein"), as Chapter 7 Trustee of the estate of J Publication Company, formerly known as Johnson Publication Company, LLC ("JPC") to determine the bankruptcy estate's liability to the Internal Revenue Service ("IRS") on a tax, or fine or penalty related to a tax, pursuant to 11 U.S.C. §§ 105, 502 & 505. For the reasons stated herein, the Court denies Stein's motion.
BACKGROUND
JPC filed its bankruptcy petition on April 9, 2019. On June 7, 2019, the Court entered a Notice Fixing Time for Filing Claims, providing that creditors other than governmental units were to file their claims on or by September 9, 2019, and that governmental unit creditors had until the following October 7, 2019, to file their claims. (See Docket No. 65). Thereafter, on November 10, 2020, the Court entered an Order establishing a special bar date for certain tax claims after having decided that some tax creditors to which JPC may be liable may not have received notice of JPC's bankruptcy case. (See Docket No. 371). The Order set a deadline of February 15, 2021, for all taxing authorities to file claims, and it provided as follows:
ANY TAX CLAIM RECEIVED AFTER THE TAX CLAIMS BAR DATE, OR WHICH IS NOT FILED AT ALL, SHALL BE DISALLOWED BY THE BANKRUPTCY COURT. ALL TAX CLAIMS THAT ARE NOT TIMELY FILED IN ACCORDANCE WITH THESE PROCEDURES SHALL BE TERMINATED AND FOREVER BARRED. TAX CLAIMS NOT TIMELY FILED SHALL BE DEEMED WAIVED AS AGAINST [STEIN] AND THE BANKRUPTCY ESTATE OF [JPC].(Id. at ¶ 6). On December 9, 2021, the IRS filed its proof of claim, to which Stein objected. On November 22, 2022, the Court sustained the objection, allowing the IRS's claim in part, and disallowing it in part. (See Docket No. 576).
Earlier in the case, Stein's tax professional, Alan D. Lasko ("Lasko"), determined that JPC had been required to file a Report of Foreign Bank and Financial Accounts ("FBAR") for calendar years 2015, 2016, and 2017. After consulting Stein during March 2021, Lasko filed the requisite Forms 114 with FinCEN for those years. During February 2023, based on additional information Lasko received from Stein, Lasko filed another Form 114 after determining that the FBAR was required for the 2018 calendar year. Lasko accompanied each filing with a statement of reasonable cause describing why no penalties should be assessed for the late-filed Forms. According to Lasko, through his Declaration in support of Stein's motion, "[JPC] is not liable for any tax as a result of the Form 114 filing . . . . However, the Estate could be liable for a fine or penalty related to a tax for each late filing of the Form 114." (Mot., Ex. A, at ¶ 8).
Through her motion, Stein requests that the Court determine or estimate the bankruptcy estate's FBAR penalties as a result of the late-filed Forms 114. According to Stein, the statute of limitation for the final potential FBAR penalty would run until April 2025. And, although Stein has attempted to resolve the matter with the IRS, she has received no response. Stein argues that the issue of whether the IRS will enforce a penalty against JPC's estate requires finality before she can issue her final report in the case and make final distributions to creditors. To delay distributions until April 2025 on the chance that the IRS determines that an amount would be owing from the estate as a result of a penalty arising from the late filing of the Forms 114 would be unacceptable to her and the creditors awaiting their distributions.
In its response, the United States of America (the "United States"), as a creditor in JPC's bankruptcy case appearing through the United States Department of Justice (the "DOJ"), argues that the Court should Stein's motion on multiple grounds. First, it argues that there is no case or controversy with respect to this matter under Article III of the United States Constitution. According to the DOJ, the United States Constitution limits the jurisdiction of Article III courts to actual cases or controversies, preventing it from rendering abstract, hypothetical, or contingent questions. (Resp. at 8 (quoting Ala. State Fed'n of Lab. v. McAdory, 325 U.S. 450, 461, 65 S.Ct. 1384, 89 L.Ed. 1725 (1945) (quotations removed))). The DOJ argues that the motion is not justiciable because it is not ripe and Stein lacks standing to bring the motion.
Additionally, the DOJ argues that the Court lacks subject-matter jurisdiction over the motion under 28 U.S.C. §§ 1334 and 157, as no proof of claim nor demand for payment had been filed with respect to the facts at matter in the instant motion. The DOJ alleges that the United States has not filed an FBAR claim in the case and is not conducting any examination of JPC or the bankruptcy estate regarding any FBAR claims. As a practical matter, the DOJ argues that any allowed claim for a prepetition FBAR claim would be subordinate to other superior or even general unsecured credit claims pursuant to 11 U.S.C. § 726 (a)(4), thus suggesting that the estate's insolvent status renders a decision from the Court unnecessary. Next, it argues that FBAR claims are not claims for taxes, or a fine or penalty relating to a tax or an addition to a tax, under the Internal Revenue Code. Finally, it argues that the United States has not waived its sovereign immunity in this case under 11 U.S.C. § 106. Therefore, according to the DOJ, Stein's motion should be denied.
JUSTICIABILITY
Case or Controversy restrictions of Article III of the United States Constitution "apply to proceedings in bankruptcy courts . . . ." Internal Revenue Serv. v. Wallace, No. 23-CV-1331-JES, 2023 WL 7360835, at *4 (C.D. Ill. Nov. 7, 2023) (internal quotations omitted); see also Pierre v. Midland Credit Mgmt., Inc., 29 F.4th 934, 937 (7th Cir. 2022) ("Article III of the Constitution limits the jurisdiction of the federal courts to 'Cases' and 'Controversies.' ") (citing U.S. CONST. art. III, § 2)). That justiciability doctrine concerns a court's ability to render decisions regarding disputes before it. The doctrine refers to standing, mootness, ripeness, and the prohibitions on providing advisory opinions and answering political questions. Wallace, 2023 WL 7360835, at *4 (quoting Sweeney v. Raoul, 990 F.3d 555, 559 (7th Cir. 2021) (quotations omitted)). A justiciable controversy must exist at all stages of its review by any court. Id. (citing Paramount Media Grp., Inc. v. Vill. of Bellwood, 929 F.3d 914, 919 (7th Cir. 2019)).
Although the Bankruptcy Code is designed to be a system of laws to be equally meted by courts, some circuits have chosen to avoid the justiciability doctrine as it relates to Article III disputes in the context of bankruptcy cases. See Wallace, 2023 WL 7360835, at *4 n.9 (observing that the Fourth and Fifth Circuits are not "shackled by Article Ill's Case or Controversy requirement"). This Court respectfully disagrees.
For a litigant to have standing, there must be present (1) a concrete and particularized injury-in-fact (2) that is traceable to a defendant's conduct (3) that can be redressed by judicial relief. Pierre, 29 F.4th at 937. An "injury in fact" requires that the allegedly injured party must both establish its standing to sue as the party invoking a court's jurisdiction and must also have "suffered an invasion of a legally protected interest that is concrete and particularized and actual or imminent, not conjectural or hypothetical." Mack v. Resurgent Cap. Servs., L.P., 70 F.4th 395, 403 (7th Cir. 2023) (internal quotation omitted).
The Court agrees with the DOJ that Stein lacks sufficient standing to permit the Court to render a decision because she has not established an "injury in fact" as defined by the caselaw. Specifically, Stein has not established that JPC's estate has been injured by the United States' inaction. While it is true that Stein wishes to administer the JPC's case efficiently, she seeks to accelerate provisions of the Bankruptcy Code, relying chiefly on Section 105(a) for her authority to do so. However, at least in this Circuit, Section 105(a) does not generally provide a standalone ground for relief but is limited to situations in which it is invoked in aid of statutory rights and obligations found elsewhere in the Code. See 11 U.S.C. § 105(a); In re Caesars Entm't Operating Co., 808 F.3d 1186, 1188 (7th Cir. 2015); In re UAL Corp., 412 F.3d 775, 778 (7th Cir. 2005); Gouveia v. Tazbir, 37 F.3d 295, 300 (7th Cir. 1994). Accordingly, the Court does not find Stein's invocation of Section 105(a) persuasive within the context of the instant motion.
The Court declines to address the other arguments made by the DOJ upon its holding that Stein's motion is nonjusticiable. An analysis or decision made beyond such holding in this context would constitute advisory speculation on issues that the Court has already decided that it cannot consider.
For the foregoing reasons, Stein's motion is denied.