Court Opinion

ID: 4127292
Source: CourtListenerOpinion
Date Created: 2017-02-17 22:01:26.957522+00
Date Added: 2024-06-11T12:44:16.132203
License: Public Domain

FILED
                                                                             U.S. Bankruptcy Appellate Panel
                                                                                   of the Tenth Circuit
                               NOT FOR PUBLICATION *
                                                                               February 17, 2017
              UNITED STATES BANKRUPTCY APPELLATE PANEL
                                                                                 Blaine F. Bates
                              OF THE TENTH CIRCUIT                                   Clerk
                         _________________________________

IN RE DAVID E. TERRELL,                                   BAP No. WO-16-007

          Debtor.
__________________________________

DAVID E. TERRELL,                                         Bankr. No. 10-16662
                                                           Adv. No. 15-01272
             Plaintiff - Appellant,                           Chapter 7

v.

INTERNAL REVENUE SERVICE,                                       OPINION

             Defendant - Appellee.
                       _________________________________

                     Appeal from the United States Bankruptcy Court
                          for the District of Oklahoma Western
                        _________________________________

Submitted on the briefs. **

                         _________________________________

Before NUGENT, ROMERO, and MOSIER, Bankruptcy Judges.
                  _________________________________

*
       This unpublished opinion may be cited for its persuasive value, but is not
precedential, except under the doctrines of law of the case, claim preclusion, and issue
preclusion. 10th Cir. BAP L.R. 8026-6.
**
        The parties did not request oral argument, and after examining the briefs and
appellate record, the Court has determined unanimously that oral argument would not
materially assist in the determination of this appeal. See Fed. R. Bankr. P. 8019(b). The
case is therefore submitted without oral argument.
ROMERO, Bankruptcy Judge.
                  _________________________________

       David Terrell appeals the bankruptcy court’s Order Granting United States’

Motion for Summary Judgment and Notice of Opportunity for Hearing (the “Summary

Judgment Order”), 1 determining that Terrell’s 1997 tax liability (the “Tax Liability”) was

nondischargeable pursuant to 11 U.S.C. § 523(a)(1) and granting summary judgment in

favor of the Internal Revenue Service (the “IRS”). 2 He challenges the bankruptcy court’s

application of collateral estoppel arising from his previous criminal conviction for tax

fraud and suggests that the bankruptcy court was required to determine the precise

amount of his past due tax liability in the adversary proceeding. Because he is mistaken

on both counts, we affirm.

       I. FACTUAL AND PROCEDURAL HISTORY

       In 2005, Terrell was charged with, and pleaded guilty to, willfully filing a false tax

return for the tax year 1997 (the “Criminal Case”). 3 In his Petition to Enter Plea of Guilty

(the “Plea Agreement”), 4 Terrell admitted: (1) he prepared and signed his 1997 income

tax return; (2) the return contained a written declaration that it was made under the

penalty of perjury; (3) he did not believe the tax return was true and correct as to all

1
       Appellant’s App. at 147.
2
       All future references to “Code,” “Section,” and “§” are to the Bankruptcy Code,
Title 11 of the United States Code, unless otherwise indicated.
3
       Exhibit C, United States’ Answer in Appellant’s App. at 25.
4
       Exhibit D, United States’ Answer in Appellant’s App. at 38.

                                             -2-
material matters; and (4) he acted willfully in filing the return. 5 Through the Plea

Agreement, Terrell specifically admitted he falsely reported his total income as $10,000

on his 1997 tax return despite the knowledge that his total income was in excess of

$130,000 for that tax year. 6 On July 5, 2005, in the Criminal Case, the district court

ordered that as a term of Terrell’s probation, he was to “comply with the [IRS] in the

compilation and payment of all federal income tax due and owing” and pay a penalty of

$16,422.00 in restitution. 7 Thereafter, on or around January 2, 2006, the IRS assessed

Terrell for federal income tax of $53,618.00 and interest of $63,815.80 for the 1997 tax

year. 8

          On November 1, 2010, Terrell filed a voluntary petition for Chapter 7 bankruptcy.

The Notice of Meeting of Creditors included a statement that it was unnecessary for

creditors to file any claims at that time and if assets became available for distribution,

additional notice regarding the filing of claims would be issued. As a result, the IRS did

not file a proof of claim. Three months later, the Chapter 7 Trustee filed a “Chapter 7

Trustee’s Report of No Distribution,” 9 and on February 16, 2011, Terrell received a

5
          Exhibit C, United States’ Answer at 2, in Appellant’s App. at 26.
6
       Exhibit 9, United States’ Brief in Support of its Motion for Summary Judgment at
19, in Appellant’s App. at 142.
7
        Exhibit 6, United States’ Brief in Support of its Motion for Summary Judgment at
3-4, in Appellant’s App. at 111-12.
8
       Exhibit 1, United States’ Brief in Support of its Motion for Summary Judgment at
2, in Appellant’s App. at 77.
9
      The Chapter 7 Trustee’s Report of No Distribution appears on January 31, 2011 as
an unnumbered docket entry on the bankruptcy court docket.
                                              -3-
discharge. On April 5, 2011, the bankruptcy court discharged the Chapter 7 Trustee and

closed the case. Over four years later, the bankruptcy court reopened Terrell’s case at his

request. 10

       On November 3, 2015, Terrell filed this adversary proceeding. In his Complaint

(the “Complaint”), 11 he requested a determination that “any and all amounts the IRS

claims [he] still owes for the 1997 tax year have either been paid in full or discharged

pursuant to 11 U.S.C. § 523(a)(1)” (the “Adversary Proceeding”). 12 On January 20, 2016,

the IRS filed the United States’ Motion for Summary Judgment and Notice of

Opportunity for Hearing, 13 and the United States’ Brief in Support of its Motion for

Summary Judgment. 14 The IRS argued it was entitled to summary judgment because, as a

result of the Plea Agreement, “[t]he doctrine of collateral estoppel bar[red] Terrell from

disputing those facts material to judgment in [the Adversary Proceeding].” 15 On February

9, 2016, Terrell filed his response (the “Response”), arguing summary judgment was

10
       Bankr. Dkt. Entry 27.
11
       Appellant’s App. at 6.
12
       Complaint at 2, in Appellant’s App. at 7.
13
       Appellant’s App. at 55.
14
       Appellant’s App. at 58.
15
       The IRS specifically argued the facts and admissions underlying Terrell’s guilty
plea supported a finding that Terrell willfully evaded his income tax liabilities and,
accordingly, his Tax Liability was not dischargeable as a matter of law pursuant to
§ 523(a)(1)(C). United States’ Brief in Support of its Motion for Summary Judgment at 5,
in Appellant’s App. at 62.

                                            -4-
inappropriate because he was also requesting the bankruptcy court determine the amount

of the Tax Liability under § 505(a)(1) (the “Tax Determination Request”). 16

       On March 21, 2016, the bankruptcy court entered the Summary Judgment Order

wherein it concluded the IRS was entitled to summary judgment finding: (1) Terrell

signed and filed his 1997 federal income tax return under penalty of perjury, reporting

$10,000 as his total income for that tax year when his income exceeded $130,000; (2)

Terrell was charged with, and pleaded guilty to, filing a false income tax return; (3) in the

Plea Agreement, Terrell admitted he acted willfully in filing the false tax return and he

signed and filed his 1997 tax return with knowledge the return was not true as to all

material matters; (4) Terrell admitted he knew his income was in excess of $130,000 and

he deliberately filed the incorrect tax return; and (5) he was “the only party against whom

the [judgment in the Criminal Case] was entered.” 17 The bankruptcy court held “a debtor

who has been criminally convicted for tax-related crimes may be collaterally estopped

from discharging his tax debt in bankruptcy for the subject years.” 18 Accordingly, the

bankruptcy court concluded the Tax Liability was nondischargeable under

§ 523(a)(1)(C). 19 Terrell now appeals the Summary Judgment Order.

16
       Response at 4, in Appellee’s App. at 4.
17
       Summary Judgment Order at 11-12, in Appellant’s App. at 157-58.
18
      Id. at 7, in Appellant’s App. at 153 (citing Wilcoxson v. United States (In re
Wilcoxson), No. 97-14519, 2002 WL 127047, at *3-6 (Bankr. S.D. Ala. Jan. 2, 2002)).
19
       Id. at 12, in Appellant’s App. at 158.

                                             -5-
       II. STANDARD OF REVIEW

       Appellant challenges the bankruptcy court’s conclusions of law regarding the

application of the doctrine of collateral estoppel. A bankruptcy court’s application of

collateral estoppel is reviewed de novo. 20

       III. DISCUSSION

       The bankruptcy court did not err in applying collateral estoppel.

       Terrell argues the bankruptcy court erred in determining his conviction in the

Criminal Case collaterally estopped him from challenging the nondischargeability of the

Tax Liability under § 523(a)(1)(C). He does not, however, present arguments as to why

the bankruptcy court’s application of collateral estoppel was in error.

       The doctrine of collateral estoppel, also known as issue preclusion, bars the

relitigation of identical issues between identical parties. 21 Collateral estoppel applies to

dischargeability proceedings in bankruptcy 22 if the following elements are met:

       (1) the issue previously decided is identical with the one presented in the
       action in question, (2) the prior action has been finally adjudicated on the
       merits, (3) the party against whom the doctrine is invoked was a party or in
       privity with a party to the prior adjudication, and (4) the party against

20
       United States v. Rogers, 960 F.2d 1501, 1507 (10th Cir. 1992) (citing Hubbert v.
City of Moore, 923 F.2d 769, 772 (10th Cir.1991)).
21
       Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 (1979) (citing Blonder-Tongue
Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 328-29 (1971)).
22
        McCart v. Jordana (In re Jordana), 232 B.R. 469, 475 (10th Cir. BAP 1999)
(citing Grogan v. Garner, 498 U.S. 279, 284-85 n.11 (1991)), aff’d, 216 F.3d 1087 (10th
Cir. 2000).

                                              -6-
       whom the doctrine is raised had a full and fair opportunity to litigate the
       issue in the prior action. 23

       In the instant case, the bankruptcy court correctly applied the collateral estoppel

doctrine. First, the issue in the Criminal Case is identical to the issue presented in the

Adversary Proceeding. 24 The factual issues underlying Terrell’s criminal conviction were

the same factual issues before the bankruptcy court in considering nondischargeability

under § 523(a)(1)(C): whether Terrell was guilty under 26 U.S.C. § 7206(1); 25 whether

he knew he filed his 1997 income tax return under penalty of perjury; whether he knew

his reported income was substantially inaccurate; 26 and whether he deliberately and

intentionally filed an incorrect tax return. Second, Terrell’s guilty plea in the Criminal

23
       Id. at 475-76. (quoting Frandsen v. Westinghouse Corp., 46 F.3d 975, 978 (10th
Cir. 1995)).
24
       Section 523(a)(1)(C) provides that federal income tax and interest assessments are
not discharged in bankruptcy if the debtor, with respect to those liabilities, “made a
fraudulent return or willfully attempted in any manner to evade or defeat such tax.” The
Tenth Circuit has held that § 523(a)(1)(C)’s “willful” requirement and evidence of
requisite willful intent has been met when the debtor had a duty, had knowledge of the
duty, and then voluntarily and intentionally violated the duty. Vaughn v. United States (In
re Vaughn), 765 F.3d 1174, 1181 (10th Cir. 2014).
25
       United States Code § 7206(1) provides any person who “[w]illfully makes and
subscribes any return, statement, or other document, which contains or is verified by a
written declaration that it is made under the penalties of perjury, and which he does not
believe to be true and correct as to every material matter” shall be guilty of a felony. 26
U.S.C. § 7206(1).
26
      Terrell knew his 1997 return reported his income around $10,000 and knew his
income at the time was actually more than $130,000. Exhibit 9, United States’ Brief in
Support of its Motion for Summary Judgment at 19, in Appellant’s App. at 142.

                                              -7-
Case constitutes a full adjudication on the merits. 27 Third, both Terrell and the IRS were

parties to the Criminal Case. Finally, Terrell had a full and fair opportunity to litigate the

Criminal Case. 28 Accordingly, upon applying de novo review, we hold the bankruptcy

court did not err in its application of collateral estoppel.

       Now, for the first time, Terrell also argues summary judgment was inappropriate

because he “sought to have the Bankruptcy Court determine the total amount of taxes, if

any, that he owe[d] for the 1997 tax year.” 29 He claims that the bankruptcy court’s failure

to address that was error. We may consider Terrell’s arguments only if the Complaint

27
       Goff v. IRS (In re Goff), 180 B.R. 193, 198-99 (Bankr. W.D. Tenn. 1995) (finding
plea agreement regarding willful attempt to evade tax collaterally estopped debtor from
disputing the nondischargeability of his debts).
28
        See, e.g., Id. at 199; McCart v. Jordana (In re Jordana), 221 B.R. 950, 953
(Bankr. W.D. Okla. 1998) (a consent judgment may support finding that the party had a
full and fair opportunity to litigate an issue), aff’d, 232 B.R. 469 (10th Cir. BAP 1999),
aff’d, 216 F.3d 1087 (10th Cir. 2000). The bankruptcy court specifically found “[a] guilty
plea satisfies the ‘actually litigated’ element of collateral estoppel.” Summary Judgment
Order at 12 n.4, in Appellant’s App. at 158 (citing BT Commercial Corp. v. Kochekian
(In re Kochekian), 175 B.R. 883, 889 (Bankr. M.D.N.C. 1995); Am. Nat’l Bank & Tr. Co.
of Chicago v. Cooper (In re Cooper), 125 B.R. 777, 780 (Bankr. N.D. Ill. 1991)).
29
       Appellant’s Br. 5.

                                              -8-
included the Tax Determination Request as a distinct claim for relief. 30 Because it did

not, we need not reach the merits of this argument. 31

       While Terrell argues he raised the Tax Determination Request in his Response; 32

merely raising a claim for relief in a response to a summary judgment motion is

insufficient to constitute an amendment to a complaint. 33 Accordingly, the bankruptcy

court did not err in granting the Motion for Summary Judgment and determining the Tax

Liability to be nondischargeable pursuant to § 523(a)(1)(C).

30
        See BV Jordanelle, LLC v. Old Republic Nat’l Title Ins. Co., 830 F.3d 1195, 1204-
05 (10th Cir. 2016) (citing Jackson v. Integra Inc., 952 F.2d 1260, 1261 (10th Cir. 1991)
(stating that the “court cannot review matters outside of the complaint”)); accord Mele v.
Fed. Reserve Bank of N.Y., 359 F.3d 251, 256-57 (3d Cir. 2004) (declining to consider a
claim raised in briefing on a Rule 12(c) motion, but not in the complaint). The
bankruptcy court noted “[t]he Complaint does not ask the Court to determine how much
Terrell owed . . . .” Summary Judgment Order at 5 n.3, in Appellant’s App. at 151.
31
       BV Jordanelle, 830 F.3d at 1204-05 (citing Jackson, 952 F.2d at 1261).
32
        Terrell raised the Tax Determination Request in his Response and requested the
bankruptcy court allow him sufficient time to amend the Complaint if the bankruptcy
court determined that the Complaint did not adequately state a cause of action. Response
at 4 n.1, in Appellee’s App. at 4. Terrell, however, never filed an amended complaint or
sought leave from the bankruptcy court to do so.
33
       Fed. R. Civ. P. 15, made applicable to adversary proceedings pursuant to Fed. R.
Bankr. P. 7015 (party must obtain written permission from opposing party or court’s
leave to amend a complaint after certain stages of litigation have passed); ACE USA v.
Union Pac. R.R. Co., No. 09-2194-KHV, 2011 WL 6097138, at *6 (D. Kan. Dec. 7,
2011) (raising an argument in summary judgment briefs was insufficient to put it before
the court, “[i]f plaintiffs decided to change their strategy, they should have filed a proper
motion to amend the pleadings . . . .”).

                                             -9-
       IV. CONCLUSION

       The bankruptcy court did not err in determining the doctrine of collateral estoppel

barred Terrell from disputing facts material to the determination of dischargeability of the

Tax Liability and did not err in determining the Tax Liability to be nondischargeable

pursuant to § 523(a)(1)(C). Accordingly, the bankruptcy court’s decision should be

AFFIRMED.

                                           -10-