In re Joye

578 F.3d 1070

In the Matter of Shelli Renee JOYE; Teresa M. Joye, Debtors Shelli Renee Joye; Teresa M. Joye, aka Michael Joye, Maria Teresa Joye & Maria Mendoza, Plaintiffs-Appellants, v. Franchise Tax Board, State of California; Selvi Stanislaus Executive Officer of State of California Franchise Tax Board, Defendants-Appellees.

No. 07-15676.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 24, 2008.

Filed August 21, 2009.

Robert N. Kolb, Antioch, CA, for the plaintiffs-appellants.

Edmund G. Brown, Jr., Attorney General for the State of California, Randall P. Borcherding, Supervising Deputy Attorney General, and Kristian D. Whitten, Deputy Attorney General, San Francisco, CA, for the defendants-appellees.

Appeal from the United States District Court for the Northern District of California, Samuel Conti, District Judge, Presiding. D.C. Nos. CV-06-02415-SC 01-30495-DM.

Before J. CLIFFORD WALLACE, SIDNEY R. THOMAS and SUSAN P. GRABER, Circuit Judges.

Opinion by Judge WALLACE; Dissent by Judge GRABER

WALLACE, Senior Circuit Judge:

Shelli Renee Joye and Teresa M. Joye (the Joyes) filed an adversary complaint in bankruptcy court against the State of California Franchise Tax Board and its Executive Director, Selvi Stanislaus (collectively, the Board), for declaratory and injunctive relief. The Joyes seek an order declaring that their state tax obligations from the year 2000 were discharged at the conclusion of their Chapter 13 bankruptcy proceeding in 2004. They also seek an injunction enjoining the Board from collecting these outstanding tax liabilities. The Board moved for summary judgment, and the bankruptcy court denied the motion. The district court reversed the bankruptcy court, and entered summary judgment in the Board's favor. The Joyes now appeal from the district court's summary judgment. We have jurisdiction over this timely appeal pursuant to 28 U.S.C. § 158(c)(2). We reverse and remand.

I.

The Joyes filed their Chapter 13 bankruptcy petition on March 7, 2001. The bankruptcy petition scheduled the Board as a priority creditor in the estimated amount of $10,000 for outstanding state income taxes for the year 2000. Pursuant to 11 U.S.C. § 342, official notice of the Joyes' bankruptcy case was then sent to all creditors scheduled in the petition. The notice indicated that the meeting of creditors would take place on April 19, 2001, and that the claims bar date for governmental claims was set for September 3, 2001. The Board does not appear to have attended the meeting of creditors, or otherwise filed objections to the Joyes' bankruptcy plan. The bankruptcy court confirmed the Joyes' bankruptcy plan on May 18, 2001. The Board did not file a proof of claim in the Joyes' case, and the claims bar date for governmental claims elapsed as scheduled.

On October 15, 2001, the Joyes filed their year 2000 state income tax return. Although this return was originally due on April 15, 2001, California law grants taxpayers an automatic six-month extension of the deadline for filing personal income tax returns. The Joyes' year 2000 state tax return was therefore timely filed. The return showed the Joyes owing taxes and penalties totaling $28,178.00. No payment accompanied the return.

The Joyes successfully completed their bankruptcy plan on February 7, 2004. On March 4, 2004, the bankruptcy court discharged the Joyes from bankruptcy pursuant to 11 U.S.C. § 1328(a). The discharge order stated that "the debtor is discharged from all debts provided for by the plan or disallowed under 11 U.S.C. § 502," subject to a few exceptions not relevant here. The order also stated that "[a]ll creditors are prohibited from attempting to collect any debt that has been discharged in this case."

Subsequently, the Board attempted to collect the outstanding taxes reported in the Joyes' year 2000 state tax return. On March 22, 2005, the Joyes commenced an adversary proceeding in bankruptcy court, alleging that the Board's collection efforts violated the discharge order. The Board filed a motion for summary judgment, arguing that the outstanding taxes survived discharge pursuant to 11 U.S.C. § 1305. In the alternative, the Board argued that barring its collection of these outstanding taxes would violate the constitutional guarantee of fundamental fairness to governmental entities.

The bankruptcy court denied the Board's motion, concluding that the outstanding taxes were properly discharged. With respect to the Board's primary argument, the bankruptcy court observed that section 1305 was inapplicable to the parties' dispute because that section "has nothing to do with discharge. It has to do with whether a creditor, such as the Board, may file a claim, and if so, how that claim is treated. But that's not our case .... [The Board] didn't file a claim and it got notice of the proceeding, and the discharge is a final order." The bankruptcy court also rejected the Board's alternative argument regarding the constitutional doctrine of fundamental fairness. The bankruptcy court held that the Board received both adequate notice of the Joyes' bankruptcy case and a meaningful opportunity to file a proof of claim for the outstanding taxes.

The district court on appeal agreed that the outstanding taxes were "technically discharged" through the Chapter 13 proceeding because the Board did not file a proof of claim. However, the district court concluded that the Board was nonetheless entitled to summary judgment because barring collection of the outstanding taxes would constitute a denial of fundamental fairness to the Board. The court held that the Board did not receive adequate notice of its right to payment on the outstanding taxes because "California's income tax system ... relies on taxpayers to assess how much they owe and inform the [Board] of that amount by filing a tax return," and the Joyes did not file their state tax return until after the claims bar date for governmental claims. The court further held that scheduling the Board as a creditor in the bankruptcy petition for an estimated amount was insufficient to provide the Board with constitutionally adequate notice.

Therefore, the district court reversed the bankruptcy court's decision, and granted the Board's motion for summary judgment. Rather than remanding the case to the bankruptcy court for further proceedings, the district court entered judgment in favor of the Board. This appeal followed.

II.

We review a district court's decision on a bankruptcy court appeal de novo. Dawson v. Wash. Mut. Bank, F.A. (In re Dawson), 390 F.3d 1139, 1145 (9th Cir. 2004). In doing so, we review the bankruptcy court's decision independently, and give no deference to the district court's determinations. Id. The bankruptcy court's factual findings are reviewed for clear error, and its conclusions of law are reviewed de novo. Id. Summary judgment is appropriate where the evidence demonstrates that there are no genuine issues of material fact for trial and the moving party is entitled to judgment as a matter of law. Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702, 707 (9th Cir.2008). A genuine issue of material fact exists if, viewing all the evidence in the light most favorable to the nonmoving party, a reasonable fact-finder could decide in that party's favor. Id.

The Joyes argue that the district court erred in entering

summary judgment in favor of the Board based on the constitutional doctrine of fundamental fairness. The Board defends the district court's constitutional determination, but argues in the alternative that summary judgment should be affirmed on statutory grounds. Downs v. Hoyt, 232 F.3d 1031, 1036 (9th Cir.2000) ("We may affirm on any ground supported by the record, even if it differs from the district court's rationale"). Because we must "avoid reaching constitutional questions in advance of the necessity of deciding them," we first address the parties' statutory arguments. Lyng v. Nw. Indian Cemetery Protective Ass'n, 485 U.S. 439, 445, 108 S.Ct. 1319, 99 L.Ed.2d 534 (1988).

A.

Both the bankruptcy court and the district court concluded that the Joyes' outstanding tax liabilities for the year 2000 were discharged at the conclusion of their bankruptcy case pursuant to 11 U.S.C. § 1328(a). In so ruling, the two courts rejected the Board's argument that these outstanding taxes survived the bankruptcy court's discharge order under 11 U.S.C. § 1305. Indeed, both courts held that section 1305 was irrelevant to the determination of whether these outstanding taxes were subject to discharge. The Board disputes this conclusion, renewing its argument that section 1305 allows certain "post-petition" claims to survive a debtor's Chapter 13 discharge so long as the claimholder elects not to file a proof of claim. For their part, the Joyes appear to concede that if the outstanding taxes give rise to a post-petition claim under section 1305, the taxes would survive discharge.

We have not addressed whether section 1305 operates to protect certain claims from a bankruptcy discharge. However, we need not decide this open question of Ninth Circuit law because even if section 1305 can be read to shield certain claims from discharge, its protection extends only to "post-petition" claims, and we conclude that the Joyes' outstanding taxes cannot give rise to such a claim under section 1305. We therefore agree with the ultimate conclusions of both courts that these taxes were discharged in the Joyes' bankruptcy case.

1.

Section 1305 is entitled "Filing and allowance of post-petition claims." Subsection (a) provides that "[a] proof of claim may be filed by any entity that holds a claim against a debtor ... (1) for taxes that become payable to a governmental unit while the case is pending." 11 U.S.C. § 1305(a)(1). The parties do not dispute that the Joyes' bankruptcy case was pending from March 7, 2001 to March 4, 2004. Therefore, whether the Joyes' outstanding...