Geisler v. Internal Revenue Serv. (In re Geisler)

539 B.R. 253

In re Michael S. GEISLER, Debtor.

Michael S. Geisler, Appellant

v.Internal Revenue Service, Appellee.

Civil Action No. 15–154.

United States District Court, W.D. Pennsylvania.

Signed Sept. 23, 2015.

Michael S. Geisler, Pittsburgh, PA, for Appellant.

Stephen S. Ho, Department of Justice, Washington, DC, for Appellee.

OPINION

JOY FLOWERS CONTI, Chief Judge.

Debtor Michael S. Geisler (“Geisler”) appeals from the bankruptcy court's order dismissing his adversary proceeding complaint. In that adversary proceeding, Geisler sought an order from the bankruptcy court seeking in effect to void nearly $700,000.00 in federal tax liens held by the Internal Revenue Service (“IRS”). The bankruptcy court dismissed Geisler's adversary complaint, with prejudice, on the ground that Supreme Court precedent prevented Geisler, in a Chapter 7 bankruptcy case, from reducing the IRS's lien to the value of the collateral securing the debt, or, in other words, from stripping down the lien. Upon de novo review, this court agrees with the bankruptcy court's analysis and conclusion with respect to Geisler's failure to state a claim, and therefore, affirms that court's November 19, 2014 order.

I. Background Facts

Geisler filed a petition for relief under Chapter 13 of the Bankruptcy Code on February 20, 2013. (ECF No. 1–3 at 2.)¹ In his completed Chapter 13 petition, Geisler scheduled a total of $13,800.00 in personal property and listed one secured claim, a tax lien held by the IRS in the amount of $13,800.00 and secured by “Furniture, Business Equipment, Accounts Receivable, Clothing.” In re Geisler, 13–20707 (Bankr.W.D.Pa.), ECF No. 21 at 4–6, 8. Approximately a week after Geisler filed his completed petition, the IRS filed a proof of claim. In re Geisler, 13–20707 (Bankr.W.D.Pa.), Claim 2–1. The IRS listed the amount of its claim as $969,419.20, with $13,800.00 identified as secured, $424,310.15 identified as unsecured priority, and $531,309.05 identified as unsecured general. Id. Attached to the proof of claim was documentation that a federal tax lien was recorded in the Allegheny County, Pennsylvania prothonotary's office on January 2, 2002, in the amount of $76,126.79, and was subsequently refiled there on September 20, 2007, in the amount of $13,511.10. Id. No objection was filed to the IRS's proof of claim.

Geisler's bankruptcy case was converted to a Chapter 11 proceeding on May 13, 2013. (ECF No. 1–3 at 2.) Several months later the IRS amended its proof of claim, listing the total amount of its claim as $977,244.31. In re Geisler, 13–20707 (Bankr.W.D.Pa.), Claim 2–2. Although the amounts of the unsecured priority and unsecured general claims were changed, the amount of, and documentation supporting, the secured claim was not altered. Id. No objection was filed to the IRS's amended proof of claim. Before the IRS filed its amendment, but after the case was converted to a Chapter 11 proceeding, the Chapter 13 standing trustee filed a final report and account in which the IRS's claim was allowed in the amounts set forth in the IRS's original proof of claim. In re Geisler, 13–20707 (Bankr.W.D.Pa.), ECF No. 75.

On January 31, 2014, Geisler's bankruptcy case was converted to a Chapter 7 proceeding, in which the trustee filed a report of no distribution on March 10, 2014. (ECF No. 1–3 at 2); In re Geisler, 13–20707 (Bankr.W.D.Pa.), ECF Nos. 93–94 and 3/10/14 Text Docket Entry. After his bankruptcy case was converted to a Chapter 7 proceeding, Geisler filed the instant adversary proceeding in which he sought an order determining that the IRS's claim was secured in the amount of $13,800.00 and discharged or released in all other respects.In re Geisler, 1320707 (Bankr.W.D.Pa.), ECF No. 113; Geisler v. IRS (In re Geisler), Ad. Pro. No. 14–2098 (Bankr.W.D.Pa.). Geisler filed similar adversary proceedings against the Pennsylvania Department of Revenue and the Pennsylvania Department of Labor and Industry, but withdrew the adversary complaints in those actions. In re Geisler, 13–20707 (Bankr.W.D.Pa.), ECF Nos. 114–15; Geisler v. Penna. Dpt. of Revenue (In re Geisler), Ad. Pro. No. 14–2099 (Bankr.W.D.Pa.), ECF No 20; Geisler v. Penna. Dpt. of Labor and Industry (In re Geisler),

Ad. Pro. No. 142100 (Bankr.W.D.Pa.), ECF No 16. In the instant adversary proceeding, the IRS filed a motion to dismiss the adversary complaint, which the bankruptcy court granted. Geisler v. IRS (In re Geisler), Ad. Pro. No. 14–2098 (Bankr.W.D.Pa.), ECF Nos. 7, 25–26. Geisler filed a notice of appeal from the bankruptcy court's order dismissing his adversary complaint, with prejudice. Id., ECF No. 29. This court has jurisdiction to hear that appeal pursuant to 28 U.S.C. § 158.

II. Standard of Review

The adversary proceeding filed by Geisler against the IRS sought a determination of the validity, extent, or priority of liens and, therefore, was a core proceeding. 28 U.S.C. § 157(b)(2)(K). In an appeal from a final order of the bankruptcy court in a core proceeding, the district court reviews the bankruptcy court's findings of fact for clear error. Fed. R. Bankr. P. 8013 ; In re Heritage Highgate, Inc., 679 F.3d 132, 139 (3d Cir.2012). The bankruptcy court's conclusions of law are reviewed de novo. In re Makowka, 754 F.3d 143, 147 (3d Cir.2014). This court's review of the bankruptcy court's decision with respect to Geisler's adversary proceeding raises legal questions which require de novo review.

III. Geisler's Adversary Proceeding

Geisler initiated the instant adversary proceeding on May 9, 2014, at which time his bankruptcy case had been converted to a Chapter 7 proceeding, and the Chapter 7 trustee had already notified the bankruptcy court that no assets were available for distribution. Geisler v. IRS (In re Geisler), Ad. Pro. No. 14–2098, ECF Nos. 1, 7 at 2. In the adversary complaint, Geisler avers that the IRS filed fifteen federal tax liens in the Court of Common Pleas of Allegheny County, Pennsylvania, between 2002 and 2012, totaling $694,139.71, but only identified, and attached documentation for, one tax lien, in the amount of $13,800.00, in the proofs of claim it filed in his bankruptcy case. Geisler v. IRS (In re Geisler), Ad. Pro. No. 14–2098, ECF No. 1 ¶¶ 4–5. Geisler contends that by doing so the IRS voluntarily limited the value of its secured claims to $13,800.00 and asked the bankruptcy court to “enter an order determining [the IRS's] claim to be a secured claim in the amount of $13,800.00, and direct the [IRS] to satisfy or release all Federal Tax Liens except FTL–02–000004, and to amend that action to a face amount of $13,800.00.” Id. at 3. In other words, Geisler asked the bankruptcy court to reduce nearly $700,000.00 in federal tax liens, and nearly $1 million in outstanding tax debt, to less than $14,000.00.

The IRS moved to dismiss Geisler's adversary complaint due to a lack of subject-matter jurisdiction and failure to state a claim upon which relief could be granted. According to the IRS, a determination about whether its tax claim was secured or unsecured would be an advisory opinion because Geisler's case was a no-asset, Chapter 7 proceeding. Geisler v. IRS (In re Geisler), Ad. Pro. No. 14–2098, ECF No. 7 at 2. The IRS argued, in the alternative, that it would be impossible for Geisler to state a claim in his adversary complaint because the United States Supreme Court decided, in Dewsnup v. Timm, 502 U.S. 410, 419, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), that a Chapter 7 debtor may not “strip down” a lien to the value of the collateral securing it. Id. at 3.

In opposition to the IRS's motion, Geisler argued that Dewsnup was distinguishable because the IRS made a “judicial admission” about “the extent of its secured claim” by filing a proof of claim listing the value of its secured claim as only $13,800.00. (ECF No. 6 at 8); Geisler v. IRS (In re Geisler), Ad. Pro. No. 14–2098 (Bankr.W.D.Pa.), ECF No. 24 at 2. According to Geisler, “statements [made] in proofs of claim .... are judicial admissions” and “the IRS should not get to retain tax liens not reflected in their Proof of Claim.” (ECF No. 6 at 8.) Geisler argues in his reply brief to this court that “[t]o the extent that [the IRS's] claims are not dischargeable, [the IRS] can issue new Federal Tax Liens on the portions of [its] claim not discharged after bankruptcy.” (ECF No. 10 at 6.)

The bankruptcy court relied upon the Supreme Court's decision in Dewsnup in determining both that Geisler's adversary complaint: (1) did not give rise to a case or controversy because the claims allowance process is not triggered in a no-asset Chapter 7 case; and (2) failed to state a claim because a Chapter 7 debtor is prohibited from stripping down an allowed secured claim. (ECF No. 1–3 at 4–5.) The bankruptcy court explained:

In Dewsnup, the Supreme Court considered whether under 11 U.S.C. § 506(d) a debtor may “strip down” a creditor's lien to the value of the collateral when that value is less than the amount of the claim secured by the lien. 502 U.S. at 411–12 [112 S.Ct. 773]. In deciding the issue, the Court addressed the interrelationship between § 506(a) and (d). Section 506(a)(1) provides, in pertinent part:

An allowed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property ... and is an unsecured claim to the extent that the value of such creditor's interest ... is less than the amount of such allowed claim.

Section § 506(d) provides that “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void ...” In Dewsnup, the Court held that § 506(d) did not permit the “petitioner to ‘strip down’ respondents' lien” reasoning that “respondents' claim is secured by a lien and has been fully allowed pursuant to § 502.” 502 U.S. at 417, 112 S.Ct. 773. The Court was unwilling to “depart from the pre-Code rule

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