Opinion
Case No. 96-12891-SSM
December 27, 1996
Robert K. Coulter, Esquire, Alexandria, VA, for the Internal Revenue Service
MEMORANDUM OPINION
This matter is before the court on the motion of the United States to dismiss this case with prejudice and to award monetary sanctions. A hearing was held on December 17, 1996. The debtor, who is representing himself, appeared and filed a memorandum in opposition. After hearing brief oral argument from both parties, the court took the matter under advisement. For the reasons stated in this opinion, the court determines that the case should be dismissed with prejudice to further filing by the debtor under any chapter of the Bankruptcy Code for a period of eighteen months from the date of dismissal unless leave is first obtained from this court, and that, as a sanction for the debtor's frivolous pleadings in this case, an order should be entered directing the chapter 13 trustee to disburse to the Internal Revenue Service ("IRS") the payments the debtor has made to the trustee during the pendency of this case.
Statement of Facts
The background and prior proceedings in this case are fully set forth in several prior opinions of this court and will not be repeated in detail. The debtor filed a voluntary chapter 13 petition in this court on May 30, 1996. This was the fourth chapter 13 case filed by the debtor in this court in the space of approximately two and a half years. Each of the prior cases was dismissed after the debtor failed to obtain confirmation of a plan. After each dismissal, the debtor promptly filed a new chapter 13 case and, in effect, simply proposed the same unconfirmable plan over again and raised the same objections to the tax claims of the IRS. In each case, the sole purpose of the filing appears to have been to prevent the IRS from enforcing, by levy or other statutory collection procedures, long-outstanding Federal income tax liabilities.
In re Karriem El-Amin Shabazz, No. 96-12891-SSM (Bankr. E.D. Va., Sept. 16, 1996) (denying confirmation of chapter 13 plan); In re Karriem El-Amin Shabazz, No. 96-12891-SSM (Bankr. E.D. Va., Nov. 14, 1996) (overruling debtor's objection to IRS claim); In re Karriem El-Amin Shabazz, No. 96-12891-SSM (Bankr. E.D. Va., Nov. 20, 1996) (denying debtor's motion to disqualify presiding judge for bias).
The prior filings, and their disposition, are as follows: Date Filed Case No. Disposition
In the present case, the debtor filed a chapter 13 plan that proposed to pay the IRS $12,000 on account of its priority tax claim and a zero percent payment on account of unsecured claims. The IRS objected to confirmation, and by memorandum opinion and order dated September 16, 1996, this court denied confirmation of the plan based on lack of good faith. The IRS had filed a proof of claim for $48,188.31 in priority tax claims relating to the tax years 1990 through 1995, and $16,770.22 as a general unsecured claim. The debtor objected to the proof of claim, but the court, after conducting an evidentiary hearing, allowed the claim with one minor adjustment on November 14, 1996. The debtor, although granted until November 15, 1996, to file an amended plan, has not done so.
For 1994 and 1995, the claims were estimated, since the debtor has not filed tax returns for those years.
The United States filed a timely motion to alter or amend the order. Upon reconsideration, the court allowed the IRS claim in full.
Conclusions of Law and Discussion I.
Dismissal of a chapter 13 case is governed by § 1307, Bankruptcy Code, which provides in relevant part as follows:
. . . on request of a party in interest or the United States trustee and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause, including —
unreasonable delay by the debtor that is prejudicial to creditors;
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denial of confirmation of a plan under section 1325 of this title and denial of a request made for additional time for filing another plan or a modification of a plan.
The use of the phrase "including" to modify "for cause" reflects that the listed grounds are illustrative. § 102(3), Bankruptcy Code. The debtor in the present case has been in chapter 13 more or less continuously since January 27, 1994, with the exception of 8 days between the first and second cases, 33 days between the second and third cases, and 9 days between the third and fourth cases. In that entire period of nearly three years, he has failed to propose a confirmable plan. Indeed, it is patently clear that the debtor has little or no interest in proposing a confirmable plan or in using chapter 13 for its intended purpose of enabling a financially-strapped debtor to restructure his or her debts and to pay them over time out of future income. It is obvious, rather, that the debtor's purpose is to use the automatic stay of § 362(a), Bankruptcy Code, to hold the IRS at bay while he continues to rehash various frivolous objections to paying his federal income taxes.
It must be emphasized that there is nothing improper about using chapter 13 as a vehicle for paying one's tax liabilities under terms that allow a taxpayer to maintain a decent standard of living and to support his or her dependents. While priority taxes must be paid in full, § 1322(a)(2), Bankruptcy Code, the payment of interest is not always required, and non-priority taxes may be compromised where the compromise is proposed in good faith and represents the debtor's best efforts. §§ 1325(a)(3) and (b)(1), Bankruptcy Code. If there is a genuine dispute as to the amount of taxes due, the bankruptcy court may resolve it. § 505, Bankruptcy Code. However, "[t]o use the bankruptcy court solely as an alternative forum for the resolution of a tax dispute is not a proper use of the Bankruptcy Code." Hopkins v. United States (In re Hopkins), 201 B.R. 993, 996 (D. Nev. 1996), citing In re Greatwood, 194 B.R. 637, 641 (9th Cir. BAP 1996). The debtor's objections to the IRS claims in this and in two of the prior chapter 13 filings did not involve factual or legal disputes over the amounts of his earnings, the availability or timing of deductions, or similar such issues. Rather, the debtor's stance has been essentially obstructive — not that he has a legal obligation to file returns and pay the taxes lawfully owed, but rather that, unless the Secretary of the Treasury first responds to each of his frivolous arguments and proves by various writings under oath that he (the debtor) owes taxes, the debtor is under no obligation to pay them. When this court previously declined to adopt his arguments and dismissed his case, the debtor simply filed a new case in a transparent effort to hinder and delay the IRS in its enforcement efforts. Given the debtor's failure in the present case to propose a confirmable chapter 13 plan "particularly in light of his failure in three prior cases to propose confirmable plans" dismissal of the present case is clearly justified on the grounds of delay prejudicial to creditors. The issue is whether this court has the power to, and should, dismiss the case with prejudice to future filings, since ordinarily a dismissal of a bankruptcy case does not bar a subsequent filing. § 349(a), Bankruptcy Code. The debtor's pattern of filing chapter 13 cases, not with any bona fide intent of paying his debts, but solely to invoke the automatic stay and provide an alternate forum for litigating with the IRS, is clearly an abuse of the bankruptcy system. Although the Bankruptcy Code specifies only two instances in which dismissal of a case expressly operates to bar a subsequent filing, there can be little question that a bankruptcy court has inherent power under § 105, Bankruptcy Code, "to stop a pattern of serial filings by debtors that abuse the bankruptcy process." In re Holder, 151 B.R. 725, 727 (Bankr. D. Md. 1993). Nor, in doing so, is the court limited to the 180-day bar period specified in § 109(g), Bankruptcy Code. In re Hundley, 103 B.R. 768 (Bankr. E.D.Va. 1989) (Tice, J.) (dismissed with prejudice to refiling for one year); In re Gros, 173 B.R. 774 (Bankr. M.D. Fla. 1994) (two years); contra, In re Jones, 192 B.R. 289 (Bankr. M.D. Ga. 1996); Frieouf v. United States (In re Frieouf), 938 F.2d 1099 (10th Cir. 1991). The debtor has enjoyed the benefit of the automatic stay in the present case for seven months. As noted above, he has been more or less continuously in chapter 13, solely for the purpose of frustrating the collection efforts of the IRS, for nearly three years. Upon careful consideration of all the circumstances, the court concludes that "in order to prevent a continuing abuse of the court's process" the debtor should be barred from refiling under any chapter of the Bankruptcy Code for a period of 18 months, except upon leave first obtained from this court.
§ 109(g), Bankruptcy Code, bars an individual debtor from filing another bankruptcy case for 180 days if the previous case was voluntarily dismissed after a motion for relief from stay was filed or was involuntarily dismissed because of the debtor's willful failure to abide by orders of the court or to appear before the court in proper prosecution of the case.
"The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title."
Courts that have reached the conclusion that there is no power to dismiss a case with prejudice except for the reasons and period specified in D 109(g) have done so on the basis of the second clause of § 349(a), Bankruptcy Code, which reads as follows:
nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(g) of this title.
Other courts, however, note that D 349(a) begins with the phrase, "Unless the court, for cause, orders otherwise," and hold that such phase applies to the second as well as the first clause of D 349(a), thereby giving the court the power, "for cause," to order dismissal with prejudice in situations other than those specified in D 109(g). Jolly v. Great Western Bank (In re Jolly), 143 B.R. 383, 387 (E.D. Va. 1992) (Smith, J.), aff'd, 45 F.3d 426 (4th Cir. 1994) (unpublished table disposition).
II.
In addition to seeking dismissal with prejudice, the IRS is requesting the imposition of sanctions under F.R.Bankr.P. 9011, the bankruptcy counterpart of Rule 11, Fed.R.Civ.P. Rule 9011(a) provides as follows:
Signature. Every petition, pleading, motion and other paper served or filed in a case under the Code on behalf of a party represented by an attorney, except a list, schedule, or statement, or amendments thereto, shall be signed by at least one attorney of record in the attorney's individual name, whose office address and telephone number shall be stated. A party who is not represented by an attorney shall sign all papers and state the party's address and telephone number. The signature of an attorney or a party constitutes a certificate that the attorney or party has read the document; that to the best of the attorney's or party's knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation or administration of the case. . . . If a document is signed in violation of this rule, the court on motion or on its own initiative, shall impose on the person who signed it, the represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the document, including a reasonable attorney's fee.
(emphasis added). In the case presently before the court, the court has little difficulty in finding that the debtor's signing of (1) a proposed plan that would have paid only $12,000 on account of the IRS priority claim and (2) an objection to the IRS's much larger proof of claim was not "well grounded in fact and . . . warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law" and was "interposed . . . to harass or to cause unnecessary delay . . . in the . . . administration of the case." Accordingly, the court is required to ("shall") impose an "appropriate sanction." The court, of course, takes into account that the debtor is not an attorney and is representing himself. On the other hand, having had his objections to the IRS claims overruled in two prior cases, he can hardly be unaware that those objections have been found to be without merit. That a litigant refuses to accept the court's ruling and obstinately persists in advancing a rejected argument does not satisfy the "good faith" requirement for presenting an argument not warranted by existing law. In dismissing the debtor's third case, Chief Judge Bostetter of this court imposed monetary sanctions under F.R.Bankr.P. 9011. The debtor's response was simply to file the present case nine days later. No new facts, no change of circumstances, and no intervening change in the law had occurred. The positions taken by the debtor were the same as those advanced in his prior case. The only apparent reason for the filing was to take advantage of the automatic stay in order to hinder and delay the IRS. Notwithstanding the debtor's history of prior filings, this court carefully considered both the plan proposed by the debtor and his objection to the IRS claim. The plan was found to have been proposed in bad faith, and the objection to the IRS claim was found to be without merit. To not impose sanctions on litigation positions so palpably without merit would simply encourage the debtor and other like-minded tax resisters to abuse the bankruptcy system for wholly illegitimate ends.
In the debtor's first case, another judge of this court specifically found the debtor's argument that he was not required to pay Federal income taxes "meritless" and his objection to the IRS claim nothing other "than a tired tax protestor tactic to avoid paying federal income taxes." In re Karriem El-Amin Shabazz, No. 94-10304-AB, Findings of Fact, Conclusions of Law and Order at 4-5 (Bankr. E.D. Va. Aug. 3, 1994) (Tice, J.). No timely appeal was taken from this ruling.
In the present case, the debtor was required to begin making payments to the chapter 13 trustee under his proposed plan within 30 days of filing the plan with the court. § 1326(a)(1), Bankruptcy Code. Ordinarily, where a plan is not confirmed, "the trustee shall return any such payment to the debtor" after deducting allowed administrative claims. § 1326(a)(2), Bankruptcy Code. Under the debtor's plan, the IRS is the only creditor who would have received payment. Since the only purpose of the present filing was to hinder and delay the IRS, an appropriate sanction is to require the chapter 13 trustee to pay to the IRS the payments made by the debtor, less the trustee's statutory commission on distributions to creditors. Accordingly, the court will direct such payment.
The plan provided for payments from the debtor to the chapter 13 trustee of $244.57 per month for 60 months.
The debtor listed an unsecured student loan debt, but the plan proposed a zero percent payment of unsecured claims.
III.
A separate order will be entered consistent with this opinion.
Jan. 27, 1994 94-10304-MVB Dismissed 10/17/94 after confirmation denied. Oct. 25, 1994 94-14067-DOT Dismissed 7/20/95 after confirmation of amended plan denied. Debtor's motion for relief from dismissal order denied 9/13/95. Oct. 16, 1995 95-14536-MVB Dismissed 3/26/96 after confirmation of plan denied. Debtor's motion to amend dismissal order denied 5/21/96.