Source: https://law.justia.com/cases/federal/appellate-courts/F2/901/513/46341/
Timestamp: 2019-10-20 03:17:30
Document Index: 382380017

Matched Legal Cases: ['§ 503', '§ 507', '§ 503', '§ 101', '§ 501', '§ 301', '§ 348', '§ 726', '§ 1107', '§ 503', '§ 503', '§ 726', '§ 501', '§ 101', '§ 101', '§ 702', '§ 1107']

In Re Walter Johnson Dba Johnson Star Route, Debtor.united States of America, Plaintiff-appellant, v. Richard B. Ginley, Trustee, Defendant-appellee, 901 F.2d 513 (6th Cir. 1990) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Sixth Circuit › 1990 › In Re Walter Johnson Dba Johnson Star Route, Debtor.united States of America, Plaintiff-appellant, v...
In Re Walter Johnson Dba Johnson Star Route, Debtor.united States of America, Plaintiff-appellant, v. Richard B. Ginley, Trustee, Defendant-appellee, 901 F.2d 513 (6th Cir. 1990)
US Court of Appeals for the Sixth Circuit - 901 F.2d 513 (6th Cir. 1990) Argued Oct. 11, 1989. Decided April 24, 1990
Walter Johnson voluntarily entered Chapter 11 reorganization proceedings under the Bankruptcy Code on May 30, 1984. Johnson continued to operate his business, Johnson Star Route, as a debtor-in-possession until the Chapter 11 proceedings were converted into a Chapter 7 liquidation by order of the bankruptcy court on September 3, 1986. At the time of conversion, the bankruptcy court appointed Richard B. Ginley as Trustee in the Chapter 7 liquidation proceeding. Pursuant to Bankruptcy Rule 3003(c) (3), the bankruptcy court set February 2, 1987, as the "bar date" for filing claims applicable to the Chapter 11 proceeding. The IRS was properly included in the Debtor's schedule of debts filed upon conversion and, therefore, received notice of the claims bar date.
Kind of Tax Tax Period Balance Due Withholding & FICA 3rd Quarter, 1985 $ 35.19 Withholding & FICA 1st Quarter, 1986 $2,777.46 Withholding & FICA 2nd Quarter, 1986 $1,699.30 FUTA 1984 $1,779.32 Highway Use 1984 $3,033.81 Total Liability: $9,325.08
Kind of Tax Tax Period Balance Due Withholding & FICA 3rd Quarter, 1985 $ 34.69 Withholding & FICA 1st Quarter, 1986 $2,738.02 Withholding & FICA 2nd Quarter, 1986 $1,688.86 Withholding & FICA 3rd Quarter, 1986 $4,793.45 FUTA 1984 $4,858.23 Highway Use 1984 $2,980.47 Total Liability: $17,093.72
The bankruptcy court rejected the arguments by the IRS and disallowed the claim for the third quarter of 1986 as a new claim filed beyond the bar date. (Order dated April 11, 1988, 84 B.R. 492.) The bankruptcy court first concluded that the subsequent claim for the third quarter of 1986 taxes did not amount to an amended claim but a new claim since the claim arose from a different tax period. Second, the bankruptcy court rejected the IRS's contention that it had no notice of the Debtor's operation during the subject period. The court found that the IRS had actual knowledge that the Debtor was operating and incurring tax liability during the third quarter of 1986 since the Debtor filed monthly operating reports, including a July 31, 1986 report filed during the third quarter. These monthly operating reports included, among other things, proof of post-petition tax payments to the IRS. Therefore, the court rejected the IRS's contention, presumably an equitable one, that the late filing of the 1986 Tax Return was the first notice. Third, the bankruptcy court concluded that the IRS failed to seek an extension of the claims bar date under Rule 3002(c) (1) and, therefore, the seven month delay in filing was "unreasonable and untimely."
The IRS appealed the adverse ruling to the district court. The IRS raised the argument that the second filing was a proper amendment, which the district court rejected. The IRS has not raised this issue on appeal to this court. Second, the IRS argued that an administrative expense claimant is not required to file a proof of claim and may file it outside of the assigned bar date. The district court rejected this argument, stating that " [b]y requiring the bankruptcy court to establish a bar date for claims, the only logical answer is that this date extends to an administrative claim for taxes as well."
The issue in this appeal is whether the bar date set by the bankruptcy court in the Chapter 7 case applies to the IRS's claim for administrative expenses incurred in the superseded Chapter 11 case. This is a question of law, and our review of the bankruptcy and district court decisions is plenary. See In re Caldwell, 851 F.2d 852, 857 (6th Cir. 1988). As an initial matter, all of the administrative expenses at issue in this case arose post-petition and pre-conversion. Since the newly appointed Trustee ceased the operation of the business upon conversion, none of the claimed tax obligations were incurred after conversion. Therefore, we are not presented with administrative expenses incurred in a Chapter 7 proceeding nor are we presented with administrative expenses incurred in an unconverted case.
The allowance of administrative expenses is governed by 11 U.S.C. § 503.4 Section 503 provides that certain expenses incurred to preserve the estate during the pendency of the bankruptcy proceedings may be allowed. Administrative expense status is important because these claims are first priority unsecured claims under 11 U.S.C. § 507(a) (1) and are paid before all other unsecured creditors.5 The general purpose of the priority of post-petition administrative expenses is to "facilitate the rehabilitation of insolvent businesses by encouraging third parties to provide those businesses with necessary goods and services." See In re United Trucking Service, Inc., 851 F.2d 159, 161 (6th Cir. 1988) (lessor's post-petition damage claim was properly treated as an administrative expense entitled to priority).
The parties on appeal do not dispute that the post-petition, pre-conversion tax claims at issue fall within the express statutory provision allowing certain taxes as administrative expenses. See 11 U.S.C. § 503(b) (1) (B) (i). The source of contention is the uncertainty over the procedure and timing for making an administrative claim upon the Debtor's estate once a case had been converted. Section 503(a) provides that "an entity may file a request for payment of an administrative expense." Section 503(b) also specifies that administrative expenses are allowed " [a]fter notice and a hearing." The bankruptcy statute, however, does not "provide for the time when a request for administrative expenses should be made nor does it provide to whom the request is to be made." 3 Collier on Bankruptcy p 503.01 (15th ed. 1989). Both the House and Senate Judiciary Committee reports on the Bankruptcy Reform Act of 1978 indicate that the Rules of Bankruptcy Procedure would specify the time, the form, and the method of such a filing. H.R.Rep. No. 595, 95th Cong., 1st Sess. 355 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 66 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787.6
The IRS argues that the bankruptcy court failed to acknowledge the distinction between "request for payments" filed by administrative expense claimants and "proofs of claim" filed by "creditors" when it required the IRS to comply with the bar date set in the Chapter 7 proceeding for claims arising in the superseded Chapter 11 case. Ginley argues, however, that whatever might be the distinction between "requests for payments" and "proofs of claim" in the ordinary case, when the Chapter 11 case was converted to a Chapter 7 case, the IRS was required to file a proof of claim. Three bankruptcy courts have accepted Ginley's argument, requiring administrative claimants in conversion cases to comply with the bar date set for claims arising in the superseded Chapter 11 case. See In re Bondi's Valu-King, Inc., 102 B.R. 108 (Bankr.N.D. Ohio 1989) (IRS's administrative claims arising in Chapter 11 proceeding subject to bar date established in subsequent Chapter 7 proceeding); In re West Johnson Corporation, 96 B.R. 182 (Bankr.W.D.Wisc.1988) (same; utility company and other administrative claimants failed to file timely proofs of claim); In re Transouth Truck Equipment, Inc., 87 B.R. 937 (Bankr.E.D. Tenn. 1988) (state administrative expense claims incurred prior to conversion from Chapter 11 to Chapter 7 must be filed by bar date; the bankruptcy court rejected Tennessee's untimely filing for estimated franchise taxes).
The IRS also contends that it is not required to file a proof of claim since it is not a creditor, as defined in 11 U.S.C. § 101(9) (A).9 As support for this argument, the IRS relies upon the language in 11 U.S.C. § 501, indicating that "creditors" file proofs of claim. The IRS contends that claims "that arose at the time of or before the order for relief," see section 101(9) (A), only refers to pre-petition claims--i.e., claims against the debtor arising prior to the filing of the Chapter 11 petition. Therefore, the IRS argues that this does not include administrative claims incurred during Chapter 11 since they arise after "the order for relief." Although it is true that the petition for Chapter 11 is "an order for relief," see 11 U.S.C. § 301, one must refer to another section of the Bankruptcy Code governing the treatment of claims upon conversion. See 11 U.S.C. § 348. Section 348, which is implemented by Bankruptcy Rule 1019,10 provides:
Section 348(a) suggests that administrative expense claimants are not creditors under section 101(9) (A) because although conversion is "an order for relief," conversion does not effect a change in "the order for relief." Section 348(d) indicates, however, that claims against the estate or the debtor that arise after "the order for relief" (petition for Chapter 11 in this case) and before conversion (to Chapter 7 in this case) are deemed to have arisen before the petition. As the bankruptcy court noted in In re Transouth, if "Sec. 348(a) means that these postpetition-preconversion claimholders are not creditors, [Sec. 348(d) ] may mean that they are to be treated as creditors." 87 B.R. at 941.
Section 348(d), however, provides an ill-defined exception for administrative claims under section 503(b). The IRS argues that the exception indicates that its claims are not deemed pre-petition claims under this provision and, therefore, the IRS is not a "creditor" within the meaning of section 101(9) (A). We need not decide whether administrative claimants actually are creditors in this instance, because we are satisfied that this exception in 348(d) indicates that administrative expenses maintain their priority status. See In re Bondi's, 102 B.R. at 111 (section 348(d) "expressly omits Sec. 503(b) administrative claims from its treatment, thereby permitting them to retain their priority") (citation omitted); In re West Johnson, 96 B.R. at 184 (section 348(d) "excepts administrative expense claims as an acknowledgement that such claims may acquire a priority payment status in the Chapter 7 case") (citation omitted); In re Transouth, 87 B.R. at 941 (the exception in section 348(d) for section 503(b) administrative expenses "obviously maintains the priority of the chapter 11 administrative expense claims"). At a minimum, we cannot agree that the exception maintains a distinction between the filing requirements of creditors and administrative expense claimants upon conversion. Although proofs of claim are generally required to be filed by pre-petition creditors, Rule 1019 similarly requires post-petition, pre-conversion claimants, including administrative claimants, to file. Therefore, as stated in In re West Johnson, 96 B.R. at 184, section 348(d) "does not create, nor prohibit a procedure for the submission of such claims upon conversion of a case. In short, section 348(d) does not concern itself with procedure, and the issue in the case at bar is wholly procedural."
The IRS cites several cases for the proposition that it is not required to comply with the time requirement set in the Chapter 7 proceeding for administrative expenses arising in the superseded case. See In re Crisp, Inc., 92 B.R. 885 (Bankr.W.D. Mo. 1988); In re Taylor Transport, Inc., 28 B.R. 832 (Bankr.N.D. Ohio 1983); In re Parker, 15 B.R. 980 (Bankr.E.D. Tenn. 1981), aff'd 21 B.R. 692 (E.D. Tenn. 1982). None of the cases is factually apposite to this case. In re Crisp involved a claim for administrative expenses which arose during the Chapter 7 proceeding and concerned their super-priority status under 11 U.S.C. § 726(b). This is not such a case. The bankruptcy courts in In re Parker (Chap. 13) and In re Taylor (Chap. 11) were not presented with cases involving conversion. Unconverted cases are not persuasive in the context of this converted case since the procedural and timing concerns regarding administrative claims in continuing, as opposed to converted cases, are much different. Further, unconverted cases are not governed by Rule 1019.
The IRS also cites In re Chicago Pacific Corp., 773 F.2d 909, 917 (7th Cir. 1985). Chicago Pacific assumed arguendo that an entity's tort claim arising during the reorganization period was an administrative expense which was not governed by the bar date for filing a proof of claim. 773 F.2d at 917. The court decided the case on other grounds, however, concluding that the request for payment was governed by the "bar dates" of laches and equitable estoppel. The court refused to permit the administrative claimant to assert a claim arising seven years after the claim arose and on the eve of consummation of the Chapter 11 reorganization plan. Chicago Pacific could be read as placing time limits upon administrative claims in unconverted cases: "At a minimum, administrative claims must be filed within a reasonable time after they arise." 773 F.2d at 917. The court was not addressing the conversion issue before us, however, and does not affect our analysis of administrative expenses incurred in a Chapter 11 and sought subsequent to conversion.
The IRS raises several other arguments that mischaracterize the nature of the present case. The IRS argues that the need for finality on pre-petition claims does not apply to administrative expenses because the trustee knows about the administrative expenses and plays a decision-making role in incurring them. Under section 348(e), however, conversion terminates the service of the previous trustee. In this case, conversion terminated the service of the debtor-in-possession, Walter Johnson.11 Although it is true that a debtor-in-possession generally performs all the functions and duties as a trustee in Chapter 11, see 11 U.S.C. § 1107,12 the IRS cannot successfully argue that Ginley, the Chapter 7 trustee, had a decision-making role in incurring the Chapter 11 expenses.
The fact that these expenses have been incurred during a finite and closed period, however, does not mean that these expenses will be fully calculated at the time of the bar date. In the case at hand, the IRS could have filed an estimated claim for this tax period by the bar date and then, if necessary, it could have amended that claim. Alternatively, the IRS could have requested an extension of time as it is expressly permitted to do under Bankruptcy Rule 3002(c) (1). The bankruptcy court expressly found that the IRS was aware that the Debtor was operating during the third quarter of 1986 but failed to file a timely claim for that tax period and failed to seek an extension. In sum, the bankruptcy and district courts did not err in disallowing the untimely claim by the IRS. Accordingly, the judgment of the district court is hereby AFFIRMED.
Ginley also filed an earlier objection to the October 21, 1986 claim, arguing that accrued interest on the subject taxes should not be entitled to administrative priority under 11 U.S.C. § 503(b) (1) (B) (i). The bankruptcy court accepted this contention and disallowed the interest. (Order dated January 19, 1988.) This issue has not been appealed and is not before this court
11 U.S.C. § 503 provides, in part:
(1) (A) the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case:
Liquidation expenses incurred in a Chapter 7 proceeding, however, generally are accorded priority over administrative expenses incurred in superseded cases. See 11 U.S.C. § 726(b)
11 U.S.C. § 501 provides:
(d) A claim of a kind specified in section 502(e) (2), 502(f), 502(g), 502(h) or 502(i) of this title may be filed under subsection (a), (b), or (c) of this section the same as if such claim were a claim against the debtor and had arisen before the date of the filing of the petition.
11 U.S.C. § 101(9) defines "creditor" as:
11 U.S.C. § 101(4) defines "claim" as:
Although a trustee's service may be terminated under section 348(e), she may be reappointed in the liquidation case as an interim trustee. Further, if another trustee is not elected under 11 U.S.C. § 702(c), the interim trustee serves as the trustee in the liquidation case. See Bankruptcy Rule 1019 advisory committee note (1983); 2 Collier on Bankruptcy, p 348.06 (15th ed. 1989). Our conclusion would not be any different if the trustee were the same in both cases
11 U.S.C. § 1107(a) provides: