V&M Management v.

• Court: Bankruptcy Appellate Panel of the First Circuit
• Decided: April 12, 2000
• Docket: BAP No. MB 98-095
• Status: Unpublished

Opinion

UNITED STATES BANKRUPTCY APPELLATE PANEL FOR THE FIRST CIRCUIT ____________________

BAP NO. MB 98-095 ____________________

IN RE: V&M MANAGEMENT, INC., Debtor. ____________________

ALPHONSE MOURAD, Appellant,

v.

STEPHEN S. GRAY, CREDITORS’ TRUSTEE, Appellee.

____________________

Appeal from the United States Bankruptcy Court District of Massachusetts [Hon. Carol J. Kenner, U.S. Bankruptcy Judge]

Before de Jesús, Vaughn, Carlo, U.S. Bankruptcy Judges

Alphonse Mourad, pro se, on brief for Appellant.

Paul D. Moore, Andrew C. Griesinger, W. Daniel Troyka and Choate, Hall & Stewart on brief for the Appellee.

___________________

April 12, 2000 ____________________ de JESÚS, J.

Alphonse Mourad (Mourad) as the sole shareholder of the

Subchapter S corporation V & M Management, Inc. (V&M) the Debtor,

appeals two bankruptcy court orders denying his request to file a

late administrative claim and to compel the trustee to pay V&M’s

federal taxes. For the reasons set forth in this opinion, we

remand a claim of trustee negligence asserted by Mourad for which

no relief was granted, and affirm the remaining rulings.

BACKGROUND

Mourad elected to treat V&M as a Subchapter S corporation

for taxation purposes before the corporation filed for

reorganization under Chapter 11. Mourad was not a scheduled

creditor, nor did he file a proof of claim. Within four months,

the court appointed a Trustee, Stephen Gray (Gray). Gray sold

V&M’s main asset, a residential apartment building. Under the

confirmed plan, the sale’s proceeds and other estate assets were

transferred to the Creditor’s Trust for liquidation and

distribution. Gray was appointed the Trustee for this trust.

Mourad retained his equity interest in V&M, but would not receive

dividends nor participate in the distribution. There is no

evidence that Mourad or Gray terminated V&M’s Subchapter S

corporate tax status pursuant to 26 U.S.C. § 1326(d).1

1 In re Stadler Associates, Inc., 186 B.R. 762, 763-764 (Bankr. S.D.Fla. 1995); 6 Norton Bankruptcy Law and Practice 2d § 128:5.

2 Mourad filed a motion seeking leave to file a late

administrative claim for reimbursement of federal and state taxes

which he estimated at $1.3 million. Mourad claimed this tax

liability as the sole stockholder of a Subchapter S corporation

was caused by Gray’s negligence in filing late tax returns, in

not paying expenses causing V&M’s excess income subject to

taxation and in not paying taxes before distribution. Hence, his

tax liability should be considered an administrative claim

payable by the estate and/or the Trust.

Mourad later filed a “Motion to Compel the Trustee to Pay

V&M Management’s Federal Taxes”, as the Internal Revenue Service

(IRS) had notified him he was liable for V&M’s outstanding taxes.

He argued the estate should be liable for these taxes and the

court should order Gray to pay, because during confirmation the

court held Gray owned V&M and as the beneficial owner of V&M’s

stock, he should be held responsible.

By separate opinions the bankruptcy court denied both

motions and this appeal ensued.

3 DISCUSSION

I. Order denying Mourad’s motion for leave to file a late administrative claim.

The bankruptcy court accepted Mourad’s factual allegations

as true and denied the motion finding it failed “to state a basis

on which relief can be granted” because:

[A]s a general rule under federal and Massachusetts law, an S corporation is not subject to liability on its income, and its shareholders are subject to income tax liability according to each’s distributive share of the corporation’s income, loss and deductions. I am aware of nothing in either federal or Massachusetts law that subjects the corporation (on the one hand) and its shareholders (on the other) to joint and several liability for the same taxes. ... Accordingly, I will deny the motion on its merit without reaching the issue of cause to assert a late claim.

Our review of the bankruptcy court’s order dismissing the

contested matter under Fed. R. Civ. P. 12 (b)(6) is de novo,2

using the following criterions:

The jurisprudence of Civil Rule 12(b)(6) is well defined. An appellate court reviews the granting of a motion to dismiss de novo, applying the same criteria that obtained in the court below. McCoy v. Massachusetts Institute of Technology, 950 F.2d 13, 15 (1st Cir. 1991). Thus, we take the factual averments contained in the complaint as true, indulging every reasonable inference helpful to the plaintiff's cause. See Dartmouth Review v. Dartmouth College, 889 F.2d 13, 16 (1st Cir. 1989); Gooley v. Mobil Oil Corp., 851 F.2d 513, 514 (1st Cir. 1988). Great specificity is ordinarily not required to survive a Rule 12(b)(6) motion. Apart from certain specialized areas not implicated here, [FN1] it is enough for a plaintiff to sketch an actionable claim by means of ‘a generalized

2 See Fed. R. Bankr. P. 7012(b) (incorporating Fed. R. Civ. P. 12(b)(6) and 12(e)) and Fed. R. Bankr. P. 9014.

4 statement of facts from which the defendant will be able to frame a responsive pleading.’ Wright & Miller, Federal Practice and Procedure: Civil 2d§ 1357 (1990). In the last analysis, then, the court of appeals ‘may affirm a dismissal for failure to state a claim only if it clearly appears, according to the facts alleged, that the plaintiff cannot recover on any viable theory.’ Correa-Martínez v. Arrillaga- Beléndez, 903 F.2d 49, 52 (1st Cir. 1990).

Garita Hotel Ltd. v. Ponce Federal Bank, 958 F.2d 15, 17 (1st

Cir. 1992).

Applying this test to the factual allegations drafted by a

pro se litigant3, we find the bankruptcy court’s order dismissing

the motion did not resolve Mourad’s claim that Gray was negligent

in the performance of his duties as trustee.4 Thus, Mourad’s

allegations provide a theory for recovery not adjudicated by the

appealed order. See generally Reading v. Brown, 391 U.S. 471

(1968); In re Charlesbank Laundry, Inc., 755 F.2d 200 (1st Cir.

1980); In re Hemingway Transport, Inc., 954 F.2d 1 (1st Cir.

1992).

Hence, we REMAND for further proceedings before the

bankruptcy court to consider Mourad’s allegations that Gray

administered the estate negligently, causing Mourad’s tax

3 Haines v. Kerner, 404 U.S. 519 (1972). 4 Before the Panel, Mourad amplified or developed this argument stating his tax liability was increased by interest paid on the unnecessary accumulation of estate income and by Gray’s failure to request a low income housing tax credit.

5 liability, or increasing his liability, and whether Mourad has

asserted this claim in a timely fashion.

II. Order denying Mourad’s motion to compel the trustee to pay V&M’s federal taxes.

Here Mourad asks for two remedies: that he be “relieved”

from a tax obligation, and that Gray be ordered to pay the taxes

from estate or trust funds. The court denied both requests. The

court reasoned that Mourad’s demand for relief from federal tax

liability was “a dispute between two parties” neither of which

was the debtor and “...the effect of their dispute on this

bankruptcy case is speculative and attenuated at best,” so that

its subject matter jurisdiction under 28 U.S.C. §§ 1334 and

157(a) was questionable, and in the interest of justice invoked

the doctrine of discretionary abstention under 28 U.S.C.

§ 1334(c). The court also refused to compel Gray to pay the

taxes finding Mourad’s allegations were legally insufficient.

A. Mourad’s demand for relief against the taxing authority.

We review the court’s decision to abstain for abuse of

discretion.5

5 “The decision to grant permissive abstention, however, lies within the discretion of the...court and...will not [be] reverse[d]...unless the...court clearly abused it discretion.” Howe v. Vaughan, 913 F.2d 1138, 1143 (5th Cir. 1990).

“An abuse of discretion occurs ‘when a relevant factor deserving of significant weight is overlooked, or when an improper factor is accorded significant weight, or when the court

6 On appeal, Mourad does not focus on whether the bankruptcy

court abused its discretion by abstaining. His argument merely

repeats those points raised before the bankruptcy court and the

IRS, i.e., he could not control V&M’s operations, he did not

receive dividends or participate in the distribution, therefore,

he should not be held liable for the taxes.6

Bankruptcy courts are courts of limited jurisdiction. See

In re Gibson Group, Inc., 66 F.3d 1436, 1440 (6th Cir. 1995); see

also Matter of Querner, 7 F.3d 1199, 1201 (5th Cir. 1993).

Jurisdiction lies in the federal district courts if “the outcome

of th[e] proceeding could conceivably have any effect on the

estate being administered in bankruptcy.” Pacor, Inc. v.

Higgins, 743 F.2d 984, 994 (3rd Cir. 1984)(citations omitted),

rev’d on other grounds, Things Remembered, Inc., v. Petrarca, 516

U.S. 124 (1995). Once jurisdiction is successfully invoked, the

next step concerns its placement according to 28 U.S.C. § 157.

considers the appropriate mix of factors, but commits a palpable error of judgment in calibrating the decisional scales.’” Roumeliotis v. Popa (In re Popa), 214 B.R. 416, 418 (B.A.P. 1st Cir. 1997)(citations omitted). 6 Mourad is possibly arguing, but does not develop, that he should be relieved from paying the taxes because once Gray was appointed trustee, he became V&M’s owner of record, with Gray as its beneficial owner. See Wilson v. Commissioner of Internal Revenue, 560 F.2d 687, 689 (5th Cir. 1977); see also W & W Fertilizer Corp. v. U.S., 527 F.2d 621, 626 ( U.S. Ct of Claims 1975). However, Mourad may bring and expand this argument before the IRS.

7 28 U.S.C. § 157 divides all proceedings filed in a

bankruptcy case into two categories: “core” and related or “non-

core”. Section 157(b)(1) authorizes bankruptcy judges to

adjudicate “all core proceedings arising under title 11, or

arising in a case under title 11". Hence, it places jurisdiction

over “core” matters in the bankruptcy courts. Decisional powers

of bankruptcy judges in “non-core” matters are limited to

submitting proposed factual and legal findings to the district

court for de novo review. 28 U.S.C. § 157(c); Matter of Wood, 825

F.2d 90, 95 (5th Cir. 1987). Hence, it places jurisdiction over

“non-core” matters in the federal district courts.

We find the court correctly classified Mourad’s request as a

related, “non-core” contested matter between entities not in

bankruptcy and which does not “invoke a substantive right

provided by title 11, [n]or [is it]...a proceeding that, by its

very nature, could arise only in the context of a bankruptcy

case.” Wood, 825 F.2d at 97. At best, Mourad’s request could be

viewed as potentially affecting the estate, limiting the

bankruptcy court to recommending factual and legal findings to

the district court. Given this jurisdictional limitation and the

fact that Mourad could and did raise these points before the IRS,

the bankruptcy court did not abuse it discretion by deciding to

8 abstain, thereby permitting the IRS to rule.7

B. Mourad’s demand for relief against the Trustee.

The bankruptcy court refused to compel the Trustee to pay

the federal taxes and penalties stating:

[T]he motion fails to identify the kinds of taxes at issue, the periods to which the taxes pertain, the amounts at issue, and the basis (or bases) on which Mr. Mourad is jointly liable for those taxes, all of which are necessary to determine (1) the amount and extent of the estate’s liability for the taxes and (2) whether...the estate is liable for such taxes. ...Without this information, the Trustee cannot formulate a meaningful response to the motion, and the Court cannot adjudicate it.

We consider this ruling as an order for a more definite

statement and a denial of Mourad’s request for his failure to

state a claim for relief. Our scope of review is de novo for

reasons we have explained above.

Mourad has yet to file more definite pleadings. He did not

develop this point in his brief, nor during oral argument.

“Judges are not expected to be mindreaders. Consequently, a

litigant has an obligation ‘to spell out its arguments squarely

and distinctly or else forever hold its peace.’” U.S. v. Zannino,

895 F.2d 1, 17 (1st Cir. 1990) (quoting Rivera-Gómez v. de

Castro, 843 F.2d 631, 635 (1st Cir. 1988)(quoting Paterson-Leitch

Co., Inc. v. Massachusetts Municipal Wholesale Elec. Co., 840

7 Although not considered by the bankruptcy court, we also find Mourad’s position is not ripe for adjudication. In re River City Hotel Corporation, 191 B.R. 371, 373 (Bankr. E.D. TN 1995).

9 F.2d 985, 990 (1st Cir. 1988)); Brown v. Trustees of Boston

University, 891 F.2d 337, 352 (1st Cir. 1989).

Even if we read the motion’s second plea liberally and

favorably to Mourad, we agree with the bankruptcy court. The

pleadings are too vague and ambiguous for the Trustee to

reasonably respond and for the court to decide. Hence, denial

was appropriate and is AFFIRMED.

CONCLUSION

We REMAND the first order to the bankruptcy court for

further proceedings consistent with this opinion. We AFFIRM the

second order as set forth above.