By order of the Bankruptcy Appellate Panel, the precedential effec t of this dec ision is limi ted to the case and parties pu rsuant to 6t

h Cir. BAP LB R 8013 -1(b). Se e also 6th C ir. BAP LBR 8010- 1(c).

File Name: 06b0010n.06 BANKRUPTCY APPELLATE P ANEL OF THE SIXTH CIRC UIT In re : TONY AND SUSAN SHULTZ ,

Debtors.

______________________________________ UNITED STATES OF AMERICA, I NTERNAL REVENUE S ERVI CE ,

Appellan t,

v. TONY AND SUSAN SHULTZ ,

Appellee s.

______________________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. 05-8038

Appeal from the United States Bankruptcy Court for the Northern District of Ohio, Western Division at Toledo

.

No. 04-31058

. Argued : February

1, 2006 Decided and Filed: May

19, 2006 Befor e: GREGG, LATTA, and SCOTT , Bankr uptcy Appellat e Panel Judges.

____________________ COUNSEL ARGUED: Peter Sklarew, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellant. ON BRI EF: Peter Sklarew, UNITED STATES DEPARTMENT OF JUSTICE, Washington , D.C., Robert G. Young, UNI TED STATES ATTORNEY, Toledo, Ohio, for Appellant

.-2- ____________________ OPINION

____________________ JAMES D. GREG G , Bankruptcy Appellate Panel Judge. The Inte rnal Revenue Service (“IRS”) appeals

a bankruptcy

court order deny

ing its motion for

relief from stay . The motion, which
was filed after confirmation of the Debtors’ cha pter 13 plan, sought relief from stay to allow the IRS to setoff a tax refund against the Debtors’ pre petition tax liability. For the reasons that follow, the bankruptcy c ourt’s decision is AFFIRMED.

I. ISSUE ON APPEAL The IRS has identified a my riad of issues on appeal, the majority of which were not raised before or decid

ed by the bankr

uptcy court. A

bsent spe cial cir

cumstanc es, this Pa

nel will no t consider “issue[s] not passed upon” by the trial court. Singletonv. W ulff , 428 U.S. 106, 120, 96 S. Ct. 2868, 2877 (1976). Accordingly, the narrow issue on appeal is whe ther the bankr uptcy court abused its discre tion when it determ ined that the IRS’s righ

t to setoff d

id not constitute cause to lift the automatic stay af

ter confirmation of the Debtors’ chapter 13 plan.

II. JURISDIC TION AND STANDARD OF REVIEW
The Ban kruptcy Appellat e Panel of t

he Sixth Circ

uit has jurisd

iction to de cide this a

ppeal. The United States District Court for the Northern D istrict of Oh io has aut horized a ppeals to this Panel, an d a fi na l o rd er of th e b an kr up tc y co ur t m ay be appealed b y r ight unde r 28 U.S.C. § 158(a)( 1). For

purposes of appea l, a n order is final if it “ends the litigation on the merits and leaves not hing for the court to do but execute the judgment.” Midland As

phalt Corp. v. Unit

e d States , 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citations omitted). The order deny ing the IRS’s motion for relief

from the a

utomatic stay

is a final order. See Sun V

alley Foo ds Co. v. D etroit Marine Terminals, Inc. (In re Sun Valley Foods Co.) , 801 F.2d 186, 190 (6th Cir. 1986).-3-

The bankruptcy c ourt’s denial of the IRS’s motion to lift the automatic stay is reviewed on appeal for an abuse of discretion. Americr edit Fin. Servs., Inc. v. N

ichols ( In re Nich ols) , 440 F.3d 850, 856 (6th

Cir. 2006); Spierer v. Federated Dept. Stores, Inc. ( In re Federated Dept. Stores, Inc.) , 328 F.3d 829, 836 (6th

Cir. 2003) (citi ng White

v. W hite (I n reWhite) , 851 F.2d 170, 174 (6th Cir. 1988)). An abuse of discretion occurs when the b ankrup tcy court “a pplies the incorrect legal standard, misapplies the correct legal standard, or r elies upon clearly

erroneo us findings of fact.” Schenck v. City of Hudson , 114 F.3d 590, 593 ( 6th Cir. 199 7) (cita tions omit

ted) . A court

also abuses its discretion if, upon review, the appellate court is left with a “definite and firm conviction that the [bankruptcy court] committed a cl ear error of judgment.” Barlow v. M.J. Waterman & Assocs., Inc. (In re M.J. W aterman & A ssocs., Inc.) , 227 F.3d 604, 607-08 (6 thCir. 2000) (quoting Soberay Mach. &Equip. Co. v. MRF Ltd., Inc ., 181 F.3d 759, 770 (6th Cir.1999)). “The question is not how the reviewing court would have ruled, but rather whether a reasonable person could a gree with the bankruptcy c ourt’s decision; if reasonable persons could differ a s to the issue , then the re is
no abuse of discretion.” In re M.J. Waterman & Assocs., I nc ., 227 F.3d at 608 (citations omitted).

III. FACTS Tony and Susan Shultz, the “Debtors,” filed a voluntary petition for relief under chapter 13 of the Bankruptcy

Code on Feb ruary 21, 2004 . The Debtors’ schedules listed the I RS as an unsecured

priority creditor with a c laim of $3, 348.51 for unpaid federal income taxes. On or before the April 15, 2 004, dea

dli ne, th e Debt ors fi led th eir 20 03 fed eral i ncome tax r eturn , clai ming a refund of $1,304.00.
The IRS fi le d a proof a claim on June 1, 2004. The claim consisted of three componen ts :
a $1,656.49unsecur

ed prior ity c laim, a $410.96 general unsecured c laim, and a $1,304.00 secured claim. An attachment to the proof of claim s tates that the $ 1,304.00 s ecured portion of

the claim relates to the IRS’s right to setoff the Debtors’ 2003 income tax refund against their prepetition tax liabilitie s. The Debtors’ chapter

13 plan tr eats the $3,348.51 owing to the IRS as a priority claim under 11 U.S.C. § 507 and provides for a full repay ment of the amount owed to the IRS as required by 111 The bank ruptcy court al so referred to a provision of the Bankruptcy

Abuse Prevention and Consumer

Protection Act of 2005, which permits government units to offset income tax refunds notwithsta

nding the automatic

stay. See11 U.S.C. 362(b)(26) (emphasis added). I t reasoned that this provision would have been unnecessary if the IRS’s “interpretation of the cur rent state of the law were correct.” (J.A. at

67.) Although this portion of the bankruptcy court’s opinion was dicta, the IRS asks that it be addressed on appeal because the bankruptcy c ourt’s reasoning could be detrimental to the I

RS “if it spr

eads.” ( Apt. Br. at 5.) Contagious or not, this Panel will not review langua ge in the bankruptcy c ourt’s opinion that was unnecessar y to its d ecision. See Halbert v. Yousif , 225 B.R. 336, 360 (E.D. Mich. 1998) (languag e in bankruptcy c ourt order was dicta and would not be add

ressed on appea

l); Republic Health C

orp. v. Coral Gables, Ltd. (In re REPH Acquisition Co.) , 134 B.R. 194, 202 (N.D. Tex. 1991) (“This court will not by way of appeal modify specific bankruptcy

court holdings that are unnecessary to its decision.”).
-4- U.S.C. § 1322(a

)(2). The IRS d

id not obje ct t o the p lan, and it was confirmed by the bankruptcy court on June 7, 20 04. Althou

gh the I RS’s appe llate brief mentions that the plan was mailed to the wrongIRS office and that it was not served w ith the confirmation order, the IRS has not alleg ed that it lacked adequate notice during the conf irmation process.
After the Debtors’ plan wa s confirmed, on November 1, 2004, the IRS filed a motion for relief from the automatic stay. T he IRS requested that the bankruptcy court modify the stay

to allow the IRS to offset its claim for prepetition taxes against the Debtors’ 2003 tax refund. The Debtors objected to the motion.
OnMay 9, 2005, the bankruptcy c ourt issued a Memorandum Opinion and Decision deny ing the motion for relief from stay . Proceeding on the assum pt io n t hat th e IR S held a va lid righ t to setoff, but without deciding the issue, the court rejected the I RS’s argument that the mere existence of this righ t constitut

ed cause for reli ef from t

he automa

tic stay . In r

eaching this conclusi on, the court emphasized

the binding effect of the Debtors’ c hapter 13 plan and

the general rule that after
a plan is confirmed, “‘caus e’ for r elief fr om stay must be ba sed upon p ost confirm ation circumst ances, such as default by

the debtor under the terms of the plan.” 1 (J.A. at 68.) Finding that the IRS had failed to establish such cause, the c ourt entered an order solel y statin g “ that the Motion of the United States of America, on behalf of the Internal Revenue Service, for Re lief from the Automatic

Stay, be, and is hereby, DENIED .” (J.A. at 69 (emphasis added)). I mportantly, the

court did not order turnover of the tax refund, nor did it determine that the I RS’s right to setoff had been extinguished.-5-

This timely appeal followed.

IV. DISCU SSION
Setoff rights in bankruptcy

cases are governe d by Section 553(a) o f the Bankruptcy Code. Th is provision “sets forth a general rule, with ce rtain exceptions, that any rig ht of set off that a creditor possesse d prior to

the debtor’s fil ing for bankruptcy is not affe cted by the B ankruptcy Code.” Citizens Bank

of Maryland v. Strumpf

, 516 U.S. 1 6, 20, 116 S. Ct. 286, 289(1995). I n this appeal, the IRS’s asserted se toff right stems from 26 U.S.C. § 6402(a) , by which the

IRS cl aims a statutory right to offset ta x overpay ments against tax liabilities prior to refunding any monies to the taxpayer. Uponthe filing

of a bank ruptcy petition, t he Bank ruptcy Code automaticall

y st ay s all actions againstproperty of the

bankruptcy e state, including “the setoff of any debt owing to the debtor that
arose before the commencement of the case under this title against any claim against the debtor.” 11 U.S.C. § 362(a)(7). However, under § 362(d),
Onrequest of

a party in intere st

and after notice and a hearing , the court shall grant relief from the stay provide d under [§ 3 62(a)], s uch as by termin ating, annul ling, mo di fyi ng , o r c on di ti on in g s uc h s ta y– (1) for cause , including the lack of ad equ ate prot ection of an inter est in property of suc

h party in interest . . . . 11 U.S.C. § 362(d) (emphasis added). As the party requesting relief fro m stay, t he IRS bears the initial burden of establishing that cause exists, while the D ebtors be ar the ul timate bur

den on all other issues except for those relating to their equity in property. 11 U.S.C. § 362(g ).
The burden of proof on a

motion to lift or modify the automatic stay is a shifting one. Section362(d)(1) requires an initial showing of cause by the movan

t, while Section 362(g) places the burden

of pro of on t he deb tor fo r all i ssues other than “ the de btor's equity in property”[.] I f the movan t fails to make an initial showing of cause, however, the court should deny re lief without requiring any showing from the debtor that it is entitled to continued protection. In re Holly’

s, Inc. , 140 B .R. 6 43, 68 3 (Bank r. W. D. Mic h. 199 2) (qu otin g Sonnax Indus., Inc. v. T ri Compo nent P rods . Cor

p. (In r e Sonn ax Ind us., I nc.), 907 F.2d 1280, 1281 (2d Cir.1990)).-6-

Becau se “cau se” for

relief f rom stay is not defined

by § 362(d)(1) , “courts must determine whether discretionary

relief i s appropriate on a case-by -case basis.” Laguna Assocs. Ltd. P’ship v. Aetna Cas. &

Sur. Co. (

In re Lagu na Assocs

. Ltd. P’ship) , 30 F.3d 734, 737 (6th Cir. 1994) (citing In re Zick , 931 F.2d 1124, 1129 (6th Cir. 1991)). After confirmation of a chapter 13 plan, relief from stay is only appropr iate whe n the alle ged ca

use for r elief ar ise s from postconf

ir mation cir

cumstanc es, suchas a default by

the debtor under

the terms of the plan. See Salt Creek Valley Bank v. Wellman (In re Wellman) , 322 B.R. 298, 301 (B.A.P. 6th Cir. 2004). This rule recognizes that a confirmed chapter 13 plan binds each cr

editor to its terms. 11 U.S.C. § 1 327(a). As this Pane l has pre viously explained: “[a]n order confirming a Chapter 13 plan is res judicata as to all [justiciable] issues which
were or could have been decided at the confirmation hearing. Section 1327 precludes a creditor from assert ing, after confirmation, any other interest than that provided for it in the confirmed p lan. ” Wellman , 322 B.R. a t 301 (quot ing Anaheim Sav. & Loan Ass’n v. Evans

(In re Evans) , 30 B.R. 530, 531 (B.A.P. 9th Cir. 198 3) (inter nal citat ions omitte d)); see also Still v. Rossville Bank (In re Chattanooga Wholesale Antiques, Inc.) , 930 F.2d 458, 463 (6th Cir. 1991) (hold ing, in a chapter 11 context, that “[c]onfirmation of a plan of reorganization by the bankruptcy c ourt has the effect of a judgment by the district court and r es judicata principles bar relitigation of any issues raised or that could have be en raise d in the confirmati on proce edings” ). Bec ause issues su ch as adequ ate protection

or lack of equity

could, and should , be rais ed in objections to confirmation, “bankruptcy courts hold that, unless it pe rtains t o a post-confirmation failure to make pay ments, the [postconfirmation] motio n [for reli ef fr om sta y] is un timely in view of the transce ndence of the confirmed plan.” Wellman , 322 B.R. at 301 (c itin g In re Minzler , 158 B.R. 720, 721 (Bankr. S.D. Ohio 1993) and Society

Bank v. B otteri (

In re Bott eri) , 108 B.R. 164, 166 (Bankr. S.D. Ohio 1989)).
In support of i ts motion, the IRS argues that the mere existence of its right to setoff t a x overpay ments against ta x liabilities, 26 U.S.C. § 6402(a), which is preserved in bankruptcy cases under § 553(a), constitutes cause for relief from stay under § 362(d)(1). See, e.g. , In re Whitaker , 173 B.R. 359 (

Bankr. S.D. Ohio1994); United States v. Orlinski(In re Orlinski) , 140 B.R. 600, 604 (Bankr. S.D. Ga. 1 991) (bot h gran ting post confirma tion relie f from stay to per mit the exercise of setoff rights). But c

f. United States v. Johnson (In re Johnson) , 136 B.R. 306 (Bankr. M.D. Ga. 1991) (confirm ed plan preclud es IR S from exer

cising s etoff ri ght so lon g as I RS is adequ

ately protected). However, notwithstanding reported decision s that have accept ed the I RS’s arg ument,2 At oral a rgumen t, the I RS conced

ed that “there’ s not an expl i c it statement in the order explicitly say

ing that our right of setoff is expunged.” ( Tr. at 10.)

-7- the proposition that the mere existence of a right to setoff is cause for re lief from stay is a tenuous
one at best. As noted by the bankr uptcy court, “[s]etoff, in eff ect, elevates an unsec

ured cla im to secured status.” Univ. Med. Ctr. v. Sullivan (In re Univ. Med. Ctr.) , 973 F.2d 1065, 1079 (3d Cir. 1992) (citi ng Lee v. Schweiker , 739 F.2d 870, 875 ( 3d Cir . 1984)) ; see 11 U.S.C. § 506(a). Yet secured creditors are not entitled to relief from stay simply

by virtue of their se cured status. They still must demonstrate cause to lift the stay.
Aside from citing its setoff right, the I RS has offe red no spe cif ic evide nce wha tsoever to est ablish cause for relief from stay . The Debtor’s tax refund remains in the I RS’s possession

. Therefore, the IRS’s interests remain adequate ly protected. F urther, as of the date of the bankruptcy court ’ s opinion, the Debtors were current in their pay ments under their plan. The IRS has not disputed this fact , nor doe s it asser t any other postconfirmation def aults in support of its motion. In accordance with Wellman , t he IRS wa s n ot en ti tl ed to re li ef fr om st ay. The IRS has raised a variety of inapposite arguments in an attempt to inoculate itself from this inescapable conclusion. Many of those arguments are premised on unfounded assertions that the bankruptcy’ s order was much broader than it actually was. Others involve hypothetica l future applications of the ord er which are n ot ripe for appellate review. With regar d to the IRS’s unwarranted

argume nts, it is impera

tive to recognize what the bankruptcy court did not

order. The bankruptcy

court did not order immediate turnover of the tax refund to the Debtors. Unless an d until the IRS is ordered to pay the refund t o Debtors, any a s sertion that the IRS’s setoff right is not adequa tely protect ed is total ly

premature. The I

RS’s concern that failure to immediately turnover the refund would subject it to possible future sui ts for vi olation of the automatic stay

is purely speculative. Nor did the bankruptcy court hold that

the IRS’s setoff rights had be en extinguished, by confirmation of

the Debtors’ plan or by

any other means. 2 To the contrary , the court assumed that the IRS held a

valid setoff right. Therefore, the Pane l need not reach the difficult issue of whether
a creditor’s unexercised

setoff right survives plan confirmation. The Panel also dec lines the IRS’s request fo r a ny i ll-advised and unnecessary adv isory opinion re gardin

g the po ssible pre clusive e ffects of the bankr uptcy court’s order. H owever , in passin g we not e that “c ollatera

l estoppe l treatsas final-8-

only those questions actua lly and nece ssarily decided in a prior suit.” Brown v. Felson , 442 U.S. 127, 139 n.10, 99 S. Ct. 2205, 2213 n.10 (1979) (additional citations omitted). Our carefulreview of the record demonstrates that the bankruptcy court made no determination

regar ding the validity of the IRS’s setoff right. Reitera ting, the bankruptcy

court, in issuing i ts decision, assume d the I RS held a valid setoff right. Notwithstanding the IRS’s repeated attempts to exaggerate t he significance of t

he bankruptcy court’s order, that court did not abuse its discretion when it decline d to modify the automatic stay to permit immediate exercise of the IRS’s presumed se toff rights. The IRS failed to demonstrate any
cause for relief from the automatic stay . In fact, the I RS failed to s how t hat the or der deny ing its motion for relief from stay had anyadverse effect on its rights whatsoeve r. The order simply le aves the Debtors’ tax refund frozen in the IRS’s possession pending the IRS’s receipt of pay

ments under the Debtors’ confirmed chapter 13 plan. Similar administrative h o lds on funds subject to setoff rightshave been

permitted by the United States Supreme Court. See Citizens Bank of Maryland v. Strumpf , 516 U.S. 16, 116 S. Ct. 286 (1995).

V. CONCLUSION
Alth ough reasona

ble pers ons may

differ on this issue , the bank ruptcy court did not abuse its discretionin de nyi ng th e IR S’ s p os tc on fi rm at io n m ot io n f or re li ef fr om th e a ut om at ic st ay. Accordingly , the bankruptcy c ourt’s order is AFFI RMED.