Maynard v. Internal Revenue Serv. (In re Aero-Fab, Inc.)

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AERO-FAB, INC., Debtor-in-Possess.

JEFFREY S. MAYNARD, Appellant, v. INTERNAL REVENUE SERVICE, Appellee

Civil Action No. 3:21-0206

BANKRUPTCY No. 3:10-bk-30836

United States Bankruptcy Court, S.D. West Virginia, Huntington Division

December 13, 2021

MEMORANDUM OPINION AND ORDER

ROBERT C. CHAMBERS UNITED STATES DISTRICT JUDGE

Pending before the Court is Appellant Jeffrey S. Maynard's Appeal from the United States Bankruptcy Court. For the following reasons, the Court AFFIRMS the Bankruptcy Court's Memorandum Opinion and Order denying Jeffrey S Maynard and AFI, LLC's ("AFI") Motion to Reopen and Jeffrey S. Maynard's Motion to Enforce Corrected Amended Order Approving Sale of Assets.

I. FACTUAL BACKGROUND

On October 8, 2021, Aero-Fab, Inc. ('Aero-Fab" or "Debtor") filed a Voluntary Bankruptcy Petition under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). Voluntary Petition at 1-3, ECF No. 2-1. Ronald Maynard owned Aero-Fab. Id. Instead of confirming a Chapter 11 Plan of Reorganization, Aero-Fab used the Chapter 11 process to sell its assets. See Debtor's Motion Authorizing Sale of Property, ECF No 2-5; Plan of Reorganization, ECF No. 2-18. The IRS objected to the Plan (ECF No. 2-2) and filed a motion to convert the case to a Chapter 7 liquidation (ECF No. 2-3). It filed to convert the case because Debtor had failed to pay its post-petition employment taxes as they became due. See Motion of the IRS to Convert or Dismiss at 1-2, ECF No. 2-3.

Debtor filed a motion to authorize an asset sale. See Debtor's Motion Authorizing Sale of Property at 2. One of these sales was to AFI. Id. at 2. Aero-Fab agreed to sell both real and personal property to AFI, initially for $300, 000. Id. at 1-2. When the IRS objected to the asset sale and challenged the reasonableness and fairness of the purchase price, the price was increased by an additional $100, 000. See Debtor's Amended Motion Authorizing Sale of Property at 1, ECF No. 2-19. Both the original and amended motion requested that "the Bankruptcy Court enter an order confirming that the Buyer will not be responsible for any of the liabilities or obligations of Aero-Fab, Inc." See Debtor's Motion Authorizing Sale of Property at 3; Debtor's Amended Motion Authorizing Sale of Property at 5. The motions both identify the proposed purchaser as AFI, LLC and state that it is owned by Jeffrey ("Jeff) Maynard, the son of Aero-Fab's owner Ronald Maynard. See Debtor's Motion Authorizing Sale of Property at 2; Debtor's Amended Motion Authorizing Sale of Property at 2-5.

On November 22, 2013, the Bankruptcy Court heard argument on the Debtor's Amended Motion to sell. See Transcript of Proceedings, ECF No. 2-11. The following exchange took place on the record:

THE COURT: Okay. Any other parties here have questions that you want to - or concerns about this sale, on the amended terms, that would include a greater sales price, $400, 000, as I understand, for virtually all the operating assets.

MR. CALDWELL^[1]: Well, Mr. Maynard is still going to have considerable personal tax exposure, because he's the owner.

THE COURT: Which Mr. Maynard?

MR. CALDWELL: Mr. Ron Maynard.

THE COURT: How are-

MR. CALDWELL: Because he's the owner.

THE COURT: - but -

MR. CALDWELL: He's going to be responsible for unpaid trust fund taxes that remain

THE COURT: - okay. But the buyer, Mr. Maynard, is not going to have responsibility for those, is that my -

MR. CALDWELL: That's correct. The sale motion indicated that Jeff Maynard, who is the son, as soon as he came forward with an interest, I told him to get an accountant, and he's been working with [Huddleston Bolen] since then. I've previously dealt with a Dan Conrad.

Id. at 16-17.

Four days after this hearing was held, Jeff Maynard formed A.F.I. Sheet Metal, LLC. See Business Organization Detail, https://apps.sos.wv.gov/business/corporations/organization.asp x?org=326011 (last visited December 6, 2021). An amended final sale order was entered on December 4, 2013. See Amended Order Approving Sale of Assets under Section 363 ("Final Sale Order"), ECF No. 2-7. The Final Sale Order noted that the property sold subject to two liens: the first in favor of First Sentry Bank ($215, 000) and the second in favor of the Internal Revenue Service ("IRS") ($256, 042). Id. The sale proceeds were to be distributed in the following order: first, to pay for the sale itself, next to First Sentry Bank, next to the administrative claim of CPA Jeff Porter, and then the balance to the IRS. Id. at 2.

In both the first and fourth paragraphs, the Final Sale Order identified the purchaser as AFI, LLC. Id. at 1-2. It also noted Jeff Maynard's insider status by stating "the Purchaser, AFI, LLC, is owned by Jeff Maynard, the son of Ronald Maynard, the owner of the Debtor." Id. at 2. However, in paragraph F, it also noted "[t]he purchaser, who is the son of the owner of the Debtor was disclosed as an insider as a part of the sale procedure." Id. at 3. The identity of the purchaser is important because the Final Sale Order essentially contained a release from liability for the purchaser.^[2] Lastly, the Final Sale Order stated that "[t]he [Bankruptcy] Court will retain jurisdiction of this transaction for the purposes of enforcing the provisions of the order and the amended purchase agreement." Id. at 3.

An Amended Asset Purchase Agreement identifies AFI, LLC as the Buyer of the assets. See Amended Asset Purchase Agreement, ECF No. 3-3. The same acknowledges that Maynard is an insider and owner and twice notes that "the Buyer is owned by Jeffrey Maynard." Id. A deed was filed on January 6, 2014, memorializing the transfer of Aero-Fab's real property. See Ex. A, ECF No. 2-9. The Deed specified that the assets were sold to "AFI, LLC." Id. at 7. The deed also stated that AFI assigned its rights to purchase the property to its owner, Jeff Maynard. Id. at 7, 9. According to the Report of Sale filed on January 7, 2014, AFI paid consideration of $400, 000 for the assets. Report of Sale at 1, ECF No. 3-4. Debtor Aero-Fab received a net sum of $159, 462 following the payoff to its accountant, the payoff to First Sentry Bank, and a holdback for quarterly fees to be owed to the Office of the U.S. Trustee. Id. On June 4, 2014, the Bankruptcy Court closed the Chapter 11 case, as no further administration was required. Order, ECF No. 3-5. After the terms of the Final Order were complete, the IRS assessed Trust Fund Recovery Penalty liability ("TFRP") against Jeff Maynard individually, for the balance of the monies owed by the Debtor.^[3]See Appellant's Brief at 5, ECF No. 5; Appellee's Brief at 5-6, ECF No. 6.

II. PROCEDURAL HISTORY

On August 3, 2020, AFI and Jeff Maynard filed a Motion to Reopen Proceedings to enforce the Final Sale Order. See Purchaser's Mot. to Reopen, ECF No. 2-8. They alleged that the IRS "sandbagged" them by assessing a TFRP for unpaid, post-petition taxes owed by Aero-Fab just after closing of the sale. See e.g., id. Essentially their argument relied on the above-referenced language in the Final Sale Order (and the resulting argument that Jeff Maynard was the Purchaser) and noted that Appellant would not have agreed to purchase the property had he known that he could be liable for the post-petition tax liens. Id. The Government replied, arguing that the Bankruptcy Court should not reopen the case where it was futile to do so, because Jeff Maynard was never relieved from personal liability as part of the Order of Sale. See e.g., Response to Motion to Reopen Proceedings, ECF No. 2-9. Accordingly, Jeff Maynard's recovery was barred by the Anti-Injunction Act ("AIA"), and instead, his only option was to seek a refund. Id. AFI and Jeffrey Maynard's reply noted that the Final Order states that the Bankruptcy Court would retain jurisdiction for enforcement and argued that the transcript of proceedings supported a finding that Jeffrey Maynard was exempt from tax liability. See e.g., Reply, ECF No. 2-10.

The Bankruptcy Court denied both Motions. See e.g., Mem. Op. and Order, ECF No. 1-1. It found that there was no reason to reopen the case, as doing so would be futile and a waste of judicial resources. Id. at 10-11. This was specifically because the Movants (Jeff Maynard and AFI) "under the guise of a motion to compel... are asking this Court to enjoin the IRS from collecting a tax it has assessed, as nothing in the record indicates that Jeff Maynard has attempted to sue the IRS for a refund." Id. at 9-10. The Court found that the practical effect and the relief sought would enjoin the IRS from collecting the tax and conflicted with the AIA. Id. Because the AIA "unequivocally applies to the underlying conflict in this case... the Court lacks jurisdiction to decide whether Jeff Maynard is properly liable for the trust fund obligation assessed by the IRS." Id. at 11. The lack of the jurisdiction made the Motion to Reopen futile, and the Bankruptcy Court denied both motions and declined jurisdiction.

Appellant chose to appeal to this Court pursuant to 28 U.S.C. § 158(c)(1). The parties' arguments are largely the same on appeal. Jeff Maynard's argument turns on the assertion that he was the purchaser of Aero-Fab and, as such, was exempt from trust fund liability by the Final Sale Order's express terms. See Appellant's Brief at 6-7, ECF No. 5. Accordingly, when he filed his Motion to Reopen, the Bankruptcy Court erred as a matter of law in refusing subject-matter jurisdiction, erred as a matter of law by refusing to enforce the express terms of the settlement agreement, and abused its discretion in failing to sanction the IRS. Id. The Government contends that AFI was the purchaser and so Jeff Maynard's request for relief from separate, personal tax liability is barred...