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Bankruptcy Rule 9024 Interpreted

In Re: Mouzon Enterprises, Inc., Case No. 09-13330 (C.A. 11, Jul. 8, 2010)

The matter on appeal pertains to the manner in which Rule 9024 of the Federal Rules of Bankruptcy Procedure is to be applied. Concluding that the courts below erred in holding that an order resolving a claim that has been objected to, but not litigated, constitutes an order “entered without a contest” for the purposes of Rule 9024, we REVERSE.

I. Background


On December 5, 2005, Appellee, Mouzon Enterprises, Inc. (“Mouzon”), filed a Petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Georgia. Thereafter, the Georgia Department of Revenue (“Department”) filed a Proof of Claim establishing a priority tax claim in the amount of $472,591.89, and an unsecured claim, which represented accrued penalties and interest, in the amount of $69,098.79. A portion of the amounts claimed by the Department were estimated because Mouzon had failed to file sales and use tax returns between December of 2000 and December of 2005.

After filing several delinquent tax returns, Mouzon objected to the Proof of Claim filed by the Department. In its Objection, Mouzon argued that according to its recently filed tax returns, the priority tax claim should not have exceeded $83,031.94, and the unsecured claim was subject to recalculation based on its actual tax liability. In response, the Department argued that according to its review of the delinquent tax returns, its priority tax claim and unsecured claim should be reduced to the amounts of $204,497.81, and $29,055.61, respectively. As with the prior Proof of Claim, portions of the revised amounts claimed by the Department had been estimated because Mouzon had not yet filed all of its delinquent returns. On September 21, 2006, following discussions between the Department and Mouzon by which the latter’s objections were resolved, the bankruptcy judge entered a Consent Order allowing the Department a priority tax claim in the amount of $174,348.84, and an unsecured claim in the amount of $29,683.15. The bankruptcy case was voluntarily dismissed on June 20, 2007.

Following dismissal of the bankruptcy case, the Department issued Assessments against Mouzon and its Corporate Officers, Milton Mouzon and Glenda Robertson Mouzon. The Corporate Officers appealed the Assessments, and their appeals were referred to the Office of State Administrative Hearings. On administrative appeal, the Corporate Officers claimed they discovered errors in the delinquent tax returns prepared for Mouzon, specifically, that the returns had included labor costs as taxable income. Based on this discovery, the Corporate Officers challenged the Assessments arguing that the amounts claimed therein were erroneous because they were based, in part, on labor costs that are not subject to sales tax under state law. In response, the Department argued that the Corporate Officers did not have standing to challenge the tax liability of Mouzon, and that the tax liability of Mouzon had already been determined by the Consent Order entered by the bankruptcy court.
 

 

Judge(s): Edmondson, Marcus, Barbour
Jurisdiction: U.S. Court of Appeals, Eleventh Circuit
Circuit Court Judge(s)
J.L. Edmondson
Stanley Marcus

 
Trial Court Judge(s)
William Barbour

 

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the bankruptcy court on september 21, 2006. in support of its motion, mouzon when a specific definition is lacking, this court has held that the federal procedural in the present case, mouzon sought relief from the consent order claiming 12 ________________________ objected to the proof of claim filed by the department, the consent order by which meaning of rule 9024 to have occurred, the parties must have actually litigated the of claim gives rise to a contested matter. see fed. rules bankr. p. 9014 (providing: matter."); fed. rules bankr. p. 3007 advisory committee's note (providing: "the not "entered without a contest" for the purposes of federal bankruptcy rule 9024. dismissed on june 20, 2007. reconsideration, the department appealed to this court. recently filed tax returns, the priority tax claim should not have exceeded $83,031.94, sanborn corp., 904 f.2d 588, 593 (11th cir. 1990). see also in re fin. federated title 9 court entered an order vacating the consent order on june 19, 2008. the matter on appeal pertains to the manner in which rule 9024 of the federal portions of the revised amounts claimed by the department had been estimated in reaching its conclusion, the bankruptcy court held, inter alia, that "[t]he word be filed within one year of the date on which the order is entered, see fed. r. civ. p. tax liability of mouzon, and that the tax liability of mouzon had already been [t]o provide that, when a proof of claim has in fact been litigated iii. conclusion burns, 53 f.3d at 1241 (citations omitted). "in this way, `[a] provision that may seem inter alia, that the motion was time barred by the one-year limitation period prescribed resolving an objection to a proof of claim is not "entered without a contest" for the bankruptcy procedure, we hold that the filing of an objection to a proof of claim in contest" as that phrase applies to bankruptcy rule 9024. the court may properly on december 5, 2005, appellee, mouzon enterprises, inc. ("mouzon"), filed clear....'" id. (quoting united sav. ass'n v. timbers of inwood forest, 484 u.s. 365, "contest" in bankruptcy rule 9024, "we ... begin by looking to the provisions of the 9024, we reverse. without a contest is not subject to the one year limitation prescribed in rule 60(c)." unsecured claim in the amount of $29,683.15. the bankruptcy case was voluntarily mistake, specifically that the amounts allowed by the order were erroneous because no. 09-13330 by that rule. by motion, and reasonable notice and opportunity for hearing shall be afforded the corporate officers claimed they discovered errors in the delinquent tax returns department argues that as mouzon objected to its proof of claim, the consent order plaintiff-appellant, contested matter initiated by an objection to a claim is governed by rule 9014 ..."). seeking to reopen the bankruptcy case for the purpose of determining the tax liability motion was untimely under bankruptcy rule 9024 and should have been dismissed barbour, district judge: mouzon. the corporate officers appealed the assessments, and their appeals were1 erred in holding that an order resolving a claim that has been objected to, but not john ley d. c. docket nos. 08-02451-cv-wbh-1, 05-86016 bkc-je relates to whether a party has had an opportunity to have his arguments filing of an objection to a proof of claim in bankruptcy. see e.g.webster's because the underlying contest came into existence at the time the objection was filed. whole law, and ... avoid interpretations contrary to the rest of the statutory scheme." because mouzon had not yet filed all of its delinquent returns. on september 21, 370-72 (1988)). f.3d 1298, 1317 (11th cir. 2006) ("we follow the plain meaning of the actual words creates a "contested matter" and, therefore, an order by which that objection is later affirming the decision of the bankruptcy court that the motion to vacate filed by settlement by the parties or a determination on the merits by the bankruptcy court, is referred to the office of state administrative hearings. on administrative appeal, the determination by the bankruptcy court, cannot have been "entered without a contest" district of mississippi, sitting by designation. objection to the proof of claim." in colley, the united states court of appeals for the exercise jurisdiction in this case under 28 u.s.c. 158(d), which grants appellate ________________________ finally, we distinguish the case of in re colley, 814 f.2d 1008 (5th cir. 1987), rules of bankruptcy procedure is to be applied. concluding that the courts below upon which mouzon relies in support of its argument that "[f]or a `contest' within the enters., inc., case no. 05-86016, slip op., at 6 (bankr. n.d. ga. jun. 19, 2008). the bankruptcy rule 9024). defined elsewhere in the bankruptcy rules. under the bankruptcy rules, a contested "contest" to exist for the purposes of rule 9024 "the parties must have actually 2 contest" for the purposes of bankruptcy rule 9024. the department further argues 3 that reference that term. additionally, establishing a bright line rule that an order (july 8, 2010) before edmondson and marcus, circuit judges, and barbour, district* (alterations in original) (citations omitted). states district court for the northern district of georgia, where it was affirmed. in this court is whether an order allowing or disallowing a claim that has been objected prepared for mouzon, specifically, that the returns had included labor costs as taxable against mouzon and its corporate officers, milton mouzon and glenda robertson proof of claim or the objection thereto, the order was entered without a contest and, slip op. at 6 (n.d. ga. mar. 30, 2009). following the denial of its motion for 13 obtained, and provides clear guidance as to whether the one-year limitation period of appeal from the united states district court for that reason. & trust, inc., 309 f.3d 1325, 1328-29 (11th cir. 2002) ("we review questions of law, after the date on which the underlying order was entered, the motion should have for the eleventh circuit and the unsecured claim was subject to recalculation based on its actual tax liability. georgia department of revenue, original order allowing or disallowing the claim. our holding not only promotes consistency among, and a uniform interpretation an objection to a proof of claim, regardless of whether it is entered following under the federal rules of bankruptcy procedure, the filing of an objection to a proof i. background term "contest" was defined differently for the purposes of each of the several rules its order, the district court: ii. discussion under both its plain and legal definitions, a "contest" would arise from the by which the objection was resolved through settlement was not "entered without a income. based on this discovery, the corporate officers challenged the assessments of, the bankruptcy rules, but also avoids the risk of confusion that could result if the a petition for relief under chapter 11 of the united states bankruptcy code in the the consent order was not barred under rule 9024, which provides, in relevant part: id., at 1010. while we agree that litigation of a proof of claim would create a represented accrued penalties and interest, in the amount of $69,098.79. a portion of argued that the relief it requested was warranted under bankruptcy rule 9024 because ________________________ in this case, we are asked to consider whether the district court erred in ed. 2009) (defining "contest" as "[t]o litigate or call into question; challenge", "[t]o federal procedural rules, however, under which certain motions seeking relief must filed therefore, its motion seeking relief from that order was excepted from the one-year dispute, no "contest" for the purposes of rule 9024 has taken place. mouzon enterprises, inc. (explaining that "it was error to conclude that [the creditor's] claim was `entered o.c.g.a. 48-2-52, by which certain corporate officers may be held personally liable for the accord in re tender loving care health servs. inc., 562 f.3d 158, 163 (2d cir. 2009) had settled their dispute over the claim without additional court proceedings to decide in the united states court of appeals argue in opposition, to controvert, to oppose"); black's law dictionary 361 (9th part, on labor costs that are not subject to sales tax under state law. in response, the having considered the plain meaning of the term "contest", and having 2005) (quoting in re issac leaseco, inc., 389 f.3d 1205, 1209 (11th cir. 2004)). as incorporated into bankruptcy rule 9024. see fed. rules bankr. p. 9024 july 8, 2010 [c]onclude[d] that if an objection is settled by the parties prior to hearing without a contest" in bankruptcy rule 9024, in the same manner as that term is in deciding the motion, the bankruptcy court concluded it had "authority to additionally, because the motion filed by mouzon seeking to vacate the consent "rule 60 f.r.civ.p. applies in cases under the code except that ... a motion ... for the 5 to summarize, the filing of an objection to a proof of claim in bankruptcy the issue on appeal raises a question concerning the interpretation of a federal rule defendant-appellee. lawther, 53 f.3d 1237, 1240 (11th cir. 1995). see also united states v. street, 472 reconsideration of the bankruptcy court's determination pursuant to the 4 of mouzon. the motion was granted on december 31, 2007. on april 7, 2008, (opining that the colley court "seemed to indicate the obvious that under rule 9024 jurisdiction over a bankruptcy court order. see e.g. jove eng'g, inc. v. i.r.s., 92 f.3d filed by mouzon was not time barred under bankruptcy rule 9024, the bankruptcy bankruptcy creates a contested matter. we additionally hold that an order resolving "contest" under the bankruptcy rules, we do not read the above quoted language as following dismissal of the bankruptcy case, the department issued assessments the claims/objections were resolved was subject to the one-year limitation period of "in a contested matter not otherwise governed by these rules, relief shall be requested department argued that the corporate officers did not have standing to challenge the in so doing, we define "contest", as that term is applied in the phrase "entered clerk filing requirement under the express language of rule 9024. thus, the issue before motions seeking "reconsideration of an order allowing or disallowing a claim against its authority was "subject to the limitation in bankruptcy rule 9024." in re mouzon mouzon enterprises, inc., its merits."); in re harbor fin. group, inc., 303 b.r. 124, 136 (bankr. n.d. tex. colley, however, does not hold, or even hint, that it is required that a claim have been claim, regardless of whether it is entered following settlement or a merits latter's objections were resolved, the bankruptcy judge entered a consent order 8 used in a court rule, just as we do with statutes."). thus, to determine the meaning of arguing that the amounts claimed therein were erroneous because they were based, in bankr. p. 9014 advisory committee's note. as such, an order resolving an objected the department appealed the decision of the bankruptcy court to the united rules "like any statutory scheme, should be given their plain meaning." burns v. judge. bankruptcy court further concluded that the motion filed by mouzon seeking to vacate without a contest' when the debtors had objected to the claim, even though the parties a priority tax claim in the amount of $472,591.89, and an unsecured claim, which jurisdiction to hear all final orders from a district court that exercised appellate purposes of bankruptcy rule 9024, regardless of whether the order is entered matter is created upon the filing of an objection to the proof of claim. see fed. rules bankruptcy judge signed the consent order without having heard the merits of the party against whom relief is sought."); fed. rules bankr. p. 9014 advisory critical sense of having the court resolve the dispute..." id. at 7. finding the motion returns, its priority tax claim and unsecured claim should be reduced to the amounts the phrase "entered without a contest" is not defined by bankruptcy rule 9024. without a contest" for the purpose of bankruptcy rule 9024. here, as mouzon considered by the court, and this interpretation furthers that intent. circumstances under which reconsideration of a bankruptcy court order may be the judgment of the united states district court for the northern district of made during the preparation of its delinquent tax returns which resulted in labor costs been denied as untimely under that rule. mouzon, however, argues that for a versus under section 502(j) of the bankruptcy code and/or bankruptcy rule 3008, but that standard."). reconsideration of an order allowing or disallowing a claim against the estate entered ambiguous in isolation is often clarified by the remainder of the statutory scheme - reconsider the allowance or disallowance of a claim" in a reopened bankruptcy case because the same terminology is used elsewhere in a context that makes its meaning litigated in a trial on the merits in order to be considered subject to a contest.") in response, the department argued that according to its review of the delinquent tax the district court.'" in re optical techs., inc., 425 f.3d 1294, 1299-1300 (11th cir. there is no discussion regarding why the drafters of the bankruptcy debtor. eleventh circuit deny an adverse claim or assert a defense to it in a court proceeding"). likewise, to, but settled before being considered on the merits by the bankruptcy court, unabridged dictionary 394 (2d ed. 1983) (defining "contest" as "to dispute, to talked, agreed, disagreed, argued and negotiated, ... they did not in fact litigate in the usual rule 60 standards if they elect not to pursue a timely appeal of the weigh the parties' arguments or issue a ruling declaring a victor in a litigated, constitutes an order "entered without a contest" for the purposes of rule 1539, 1547 (11th cir. 1996). "in the bankruptcy context, this court sits as a `second determined by the consent order entered by the bankruptcy court. georgia dept. of revenue v. mouzon enters, inc., civil action no. 1:08-cv-2451, whether made by the bankruptcy court or by the district court, under a de novo the subject consent order was based on a material mistake of fact i.e. mistakes that as the motion seeking relief from the consent order was filed more than one year georgia department of revenue ("department") filed a proof of claim establishing 60(c), under the bankruptcy rules, the one-year filing requirement does not apply to united states bankruptcy court for the northern district of georgia. thereafter, the to the bankruptcy court for further proceedings consistent with this opinion. following settlement or hearing on the merits, promotes finality by restricting the 6 mouzon was timely because the underlying consent order was "entered without a fifth circuit interpreted bankruptcy rule 9024: court of review' and thus `examines independently the factual and legal or a ruling by the court, and the court has had no opportunity to either to file sales and use tax returns between december of 2000 and december of 2005. resolved, whether through settlement or a determination on the merits, is not "entered order was filed more than one year after the date on which the order was entered, the the amounts claimed by the department were estimated because mouzon had failed 7 (providing: "rule 60 f. r. civ. p. applies in cases under the code ..."). unlike the allowing the department a priority tax claim in the amount of $174,348.84, and an for the northern district of georgia limitations period of rule 9024. see e.g. in re tender loving care, 562 f.3d at 162 a proof of claim that has `in fact been litigated' in a trial on the merits is contested. unpaid taxes of their corporation. mouzon filed a motion seeking to vacate the consent order that had been entered by after filing several delinquent tax returns, mouzon objected to the proof of honorable william henry barbour, jr., united states district judge for the southern* include labor costs as taxable income. a mistake is grounds on which relief from an 11 bankruptcy rule 9024 has been implicated. considered the manner in which that term is used elsewhere in the rules governing rules chose to insert this exception in rule 9024, but it most likely constitutes an order "entered without a contest" for the purposes of rule 9024. of bankruptcy procedure, we apply a de novo standard of review. see in re chase & that objection was resolved following settlement, was not "entered without a contest." requiring actual litigation as a condition precedent for implicating the one-year order may be granted under federal rule of civil procedure rule 60(b)(1), and is thus "contest" in rule 9024 means actual litigation", and while the parties "may have 2003) (finding that claims which had been objected to and later settled by the parties u.s. court of appeals __________________________________________________________________ in re: being erroneously included as taxable income. in response, the department argued, litigated the objection to the proof of claim." mouzon further argues that as the [publish] the estate entered without a contest." fed. rules bankr. p. 9024. here, the direction to enter judgment in favor of the department, and to then remand the case between parties to a bankruptcy proceeding, the litigants must seek they were based on its delinquent tax returns which had been mistakenly prepared to of $204,497.81, and $29,055.61, respectively. as with the prior proof of claim, georgia is hereby reversed. the case is remanded to the district court with committee's note (providing: "[t]he filing of an objection to a proof of claim, to a _________________________ were contested and, therefore, a motion seeking reconsideration of the order by which claim filed by the department. in its objection, mouzon argued that according to its claim of exemption, or to a disclosure statement creates a dispute which is a contested the official assessments against the corporate officers were issued pursuant to1 2006, following discussions between the department and mouzon by which the 10 determinations of the bankruptcy court and employs the same standards of review as on december 27, 2007, mouzon and its corporate officers filed a motion


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