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Drake v. United States

United States District Court, N.D. New York

December 4, 2014

RALPH H. DRAKE, JR., Appellant,


LAWRENCE E. KAHN, District Judge.


Appellant Ralph Drake, Jr. ("Appellant" or "Debtor") appeals a decision by U.S. Bankruptcy Judge Robert E. Littlefield, Jr. denying Appellant's Objection to a proof of claim filed by the Internal Revenue Service ("IRS"). Dkt. Nos. 1 ("Notice of appeal"); 2-8 ("August Order"). For the reasons that follow, Judge Littlefield's decision is affirmed.


Appellant is a debtor under Chapter 7 of the U.S. Bankruptcy Code. See Aug. Order ¶ 1. In January 2002, the IRS filed a claim for assessments against Appellant as the person responsible for unpaid withholding taxes of two corporations under his control. See id. ¶ 2. On June 23, 2006, Appellant filed a "motion to determine the amount of claim." Id . ¶ 4. The IRS had claimed that Appellant owed $120, 959.45, but Appellant asserted that an IRS agent informed Appellant that he only owed $91, 557.00. Id . The IRS did not oppose the motion, and the Bankruptcy Court issued an order establishing the amount owed as $91, 557.00. Id . However, it was later discovered that Appellant failed to properly serve the United States with the motion, and as a result the previous order was vacated. Id . ¶¶ 5-6.

Appellant subsequently filed an Objection to the IRS claim in May 2010. Id . ¶ 7. On July 13, 2010, in anticipation of an evidentiary hearing, Appellant provided a proposed exhibit list that included copies of five checks written to the IRS by one of the corporations at issue, and a handwritten summary of payments allegedly made to the IRS by each of the two companies. Id . However, Appellant withdrew his Objection three days later. Id.

Over the next several months, the parties unsuccessfully engaged in informal efforts to resolve the issue of payments allegedly made to the IRS that were not reflected on Appellant's tax account. Id . ¶ 8. Appellant then filed a second Objection to the IRS claim on February 8, 2011. Id . In his second Objection, Appellant argued that: (1) the IRS was required to turn over funds previously paid by Appellant toward his debt, and (2) the IRS had not properly credited Appellant's tax account with unspecified payments. Id . ¶ 9.

By order dated May 18, 2011, "after notice and a hearing on the motion, " Judge Littlefield denied Appellant's first claim but did not resolve whether the IRS had failed to credit certain payments made by Appellant. Id . ¶ 11. Over the next two years, Judge Littlefield afforded Appellant "numerous opportunities to file evidentiary proof to support the allegation in his objection to the [IRS] claim that [Appellant] had made payments against the [IRS]'s assessments which the [IRS] failed to account for in its proof of claim, as amended." Id . ¶ 12. As of June 12, 2013, Appellant had not served responses to Appellee's requests for production of documents, nor had Appellant provided any evidence other than the documents included with Appellant's July 2010 proposed exhibit list. Id . ¶ 13. Furthermore, "Debtor's counsel represented to th[e] Court that the Debtor did not have any additional documents to support his claim." Id . Accordingly, Judge Littlefield found that Appellant failed to carry his burden of proof to overcome the prima facie validity of the IRS's proof of claim and denied Appellant's remaining objection. Id . This appeal ensued.


On appeal, a district court reviews a bankruptcy court's factual findings for clear error and its legal conclusions de novo. Cnty. of Clinton v. Warehouse at Van Buren St., Inc., No. 12-CV-1636, 2013 WL 2145656, at *1 (N.D.N.Y. May 15, 2013) (citing R2 Invs., LDC v. Charter Commc'ns, Inc., 691 F.3d 476, 483 (2d Cir. 2012)). "A finding is clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948). Following review, a district court "may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." FED. R. BANKR. P. 8013.


Appellant raises three arguments in support of his Appeal: (1) the documents submitted by the IRS did not support a presumption of validity; (2) the Bankruptcy Court erred in ruling on Appellant's Objection without conducting a full evidentiary hearing; and (3) the documents produced by Appellant were sufficient to overcome the presumption of validity attached to the IRS proof of claim. See generally Dkt. No. 5 ("Appellant's Brief"). Appellee opposes each argument and also asserts that Appellant does not have standing to pursue his Appeal. Dkt. No. 7 ("Appellee's Brief").

A. Standing

"It is well-established that a Chapter 7 debtor is a party in interest' and has standing to object to a sale of the assets, or otherwise participate in litigation surrounding the assets of the estate, only if there could be a surplus after all creditors' claims are paid" that would revest in the debtor when the bankruptcy concludes. In re 60 E. 80th St. Equities, Inc., 218 F.3d 109, 115 (2d Cir. 2000); see also In re Hope 7 Monroe St. Ltd. P'ship, 743 F.3d 867, 871 (D.C. Cir. 2014) (noting that Chapter 7 debtors "generally lack standing because bankruptcy proceedings absolve the debtor of any liability to creditors and the debtor has no interest in the distribution of the estate's property since the property has passed to the trustee"). This principle is "based on the assumption that the success of the debtor's objection cannot affect him because the debtor receives a distribution only ...

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