Drake v. Massachusetts Department of Revenue et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
____________________________________________
IN RE:
BARBARA DRAKE, 	Chapter 7
DEBTOR. 	Case No. 03-18150-WCH
____________________________________________
BARBARA DRAKE,
PLAINTIFF, 	Adversary Proceeding
No. 08-1204
v.
MASSACHUSETTS DEPARTMENT OF REVENUE,
NAVJEET BAL, COMMISSIONER,
DEFENDANTS.
____________________________________________
MEMORANDUM OF DECISION
I. 	INTRODUCTION
The matters before the Court are the Defendant’s, Massachusetts Department of
Revenue 	(the 	“MDOR”), 	Motion 	for 	Summary 	Judgment 	(“MDOR’s 	Motion 	for
Summary Judgment”), the Plaintiff’s, Barbara Drake (“Drake”), opposition thereto,
Drake’s Motion for Summary Judgment (“Drake’s Motion for Summary Judgment”), and
the MDOR’s opposition. 	Generally, the parties seek to determine whether the MDOR
maintains a valid tax lien against Drake that attached to Drake’s right to her retirement
pension prior to her filing her bankruptcy petition, and whether the MDOR violated the
discharge injunction. 	For the reasons set forth below, I will enter judgment granting in
part and denying in part both of the motions for summary judgment.
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II. BACKGROUND
Drake was born on May 30, 1939. 1 For more than thirty years she has been
employed as a public elementary school teacher in Massachusetts and has been a member
of the Massachusetts teachers’ contributory retirement system.2 At all times relevant
hereto, Drake has 	been 	married to and resided with Gregory Drake (“Gregory,”
collectively, with Drake, the “Drakes”).3
The Drakes filed late joint income tax returns for the years 1993 through 1996
(the “1993-1996 Taxes”).4 The assessment date (the date the late return was filed) and
assessment amount are summarized in the matrix below: 5
Period 	Assessment Date 	Assessment Amount
1993 	3/27/1995 	$2,200.00
1994 	2/26/1998 	$550.00
1995 	9/25/1997 	$47,082.00
1996 	9/26/1997 	$2,598.00
Pursuant to Massachusetts law, the tax liens (the “Tax Liens”) arose at the time of the
assessment for the delinquent taxes.6 The Tax Liens attached to all property or rights to
property the Drakes held either jointly or separately. 7
1 MDOR’s Motion for Summary Judgment, Exhibit A - Statement of Material Facts Not in Dispute
(“SMF”) ¶ 1, Docket No. 62, Adversary Proceeding No. 08-01204 (the “Adversary Proceeding”). All
references to docket numbers hereinafter refer to the Adversary Proceeding, unless otherwise stated.
2 Id. at ¶ 2.
3 Id. at ¶ 4.
4 Id. at ¶¶ 5-6 & 8-9.
5 Id. at ¶ 11.
6 Mass. Gen. Laws ch. 62C, § 50(a).
7 SMF at ¶ 11.
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On August 19, 1997, before the Drakes filed the late tax returns for 1995-1996,
they filed a joint Chapter 13 bankruptcy petition in the United States Bankruptcy Court
for the District of Massachusetts (the “Joint Case”).8 Almost two years later, on July 20,
1999, the Joint Case was dismissed without a Chapter 13 plan having been confirmed.9
On May 9, 2000, the MDOR filed a Notice of Massachusetts Tax Lien for the
delinquent 1993-1996 Taxes (the “Notice”) in the Barnstable County Registry of Deeds
and in the Office of the Secretary of State.10 Approximately one month after the Notice
was filed, on June 3, 2000, the Drakes entered into a payment agreement with the MDOR
for the 1993-1996 Taxes that required that they make monthly payments in the amount of
$600 to the MDOR and that they continue to file their tax returns (the “Payment
Agreement”).11
Later that same year, Gregory entered into a payment agreement with the MDOR
for certain trust fund taxes incurred by one of his businesses for which he had been held
personally 	liable 	(the 	“Business 	Payment 	Agreement”).12 The 	Business 	Payment
Agreement required that Gregory make monthly payments of $150 to the MDOR and
continue to file appropriate tax returns. 13
8 Id. at ¶ 7.
9 Id. at ¶ 10.
10 Id. at ¶ 11.
11 Id. at ¶ 12.
12 Id. at ¶ 13.
13 Id.
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On September 30, 2003 (the “Petition Date”), Drake, this time on her own, filed a
voluntary Chapter 13 petition (the “Bankruptcy Case”).14 On her Schedule B-Personal
Property, 	Drake 	listed 	her 	right 	to 	a 	pension 	from 	the 	Massachusetts 	Teachers’
Contributory Retirement system (the “Pension”), which had vested by the Petition Date
though she had not retired yet.15 The next month, the MDOR filed a secured proof of
claim for unpaid taxes as follows: 16
Period 	Assessment Date 	Tax 	Interest 	Penalty
1993 	3/27/1995 	$0.00 	$46.26 	$22.72
1994 	2/2/1996 	$0.00 	$507.85 	$118.92
1995 	9/25/1997 	$25,241.00 	$50,767.19 	$19,307.35
1996 	9/26/1997 	$0.00 	$218.80 	$75.45
On September 2, 2004, upon Drake’s motion, the Bankruptcy Case was converted
to one under Chapter 7.17 That December, Drake was granted a discharge (the
“Discharge”) 18 under section 707 of the Bankruptcy Code (the “Code”).19
On January 3, 2006, Drake’s attorney sent a letter to an attorney at the MDOR
allegedly confirming a conversation that they had in which the MDOR’s attorney stated
that “the liens which had been filed against Mrs. Drake have expired as a matter of law
and that the [MDOR] can no longer collect from Mrs. Drake for [the 1993-1996 Taxes]”
14 Id. at ¶ 14.
15 Id. at ¶ 17.
16 SMF at ¶ 18. Drake disputes that the MDOR’s claim is “secured” but does not dispute the amount of the
claim.
17 Id. at ¶ 19.
18 Id. at ¶ 20.
19 11 U.S.C. § 101 et seq.
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(the “Lien Expiration Letter).20 There is no response to this letter in the record nor is
there any other evidence substantiating the claim made therein.
By 2008, the only outstanding liability was for the 1995 and 1996 taxes (the
“1995-1996 Taxes”).21 Gregory continued to make payments on the Payment Agreement
through February of 2008.22 Two months later, after Gregory had stopped making
payments on the Payment Agreement, the MDOR sent Gregory a “Notice of Intent to
Terminate Payment Agreement” for failure to comply with the terms of the Payment
Agreement.23 In April of 2008, Gregory’s counsel, Timothy Burke (“Burke”) applied for
hardship relief (the “Hardship Application”) for the remaining balances of the 1995-1996
Taxes and his business trust fund taxes in light of a medical condition that purportedly
left Gregory unable to continue to make payments pursuant to the Payment Agreement.24
In response to the Hardship Application, the MDOR reviewed Gregory’s application to
determine what additional documents were needed to make a decision.25
On May 14, 2008, a tax representative from the MDOR, Anne Breton (“Breton”),
and Burke discussed Gregory’s Hardship Application.26 During the course of the
conversation, they discussed the continued validity of the Tax Liens.27 Burke insisted
20 Affidavit of Timothy Burke, Exhibit 3, Docket Number 68.
21 Memorandum of Law in Support of the Defendants’ Motion for Summary Judgment, Docket Number 71
22 SMF at ¶ 21.
23 Docket Number 63, Affidavit of Anne M. Breton (the “Breton Affidavit”), Exhibit B.
24 SMF at ¶ 22.
25 Breton Affidavit at ¶¶ 19-20.
26 Id. at ¶ 22.
27 Id.
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that the Tax Liens expired during Drake’s bankruptcy and that she no longer had any
liability for outstanding taxes.28 That same day, Breton called Burke and told him that
the MDOR’s position was that the Tax Liens had not expired, and that because some of
the liabilities might be collectable from her, the MDOR needed certain information.29
Burke reiterated that Drake received a discharge in bankruptcy, and in response, Breton
instructed him to forward Drake’s bankruptcy information to her along with Gregory’s
financials and hardship information. 	Later that same day, Burke sent a copy of the
Discharge to the MDOR but did not send any information related to the Hardship
Application.30
On June 25, 2008, the MDOR, in a notice addressed solely to “Gregory Drake,”
denied the Hardship Application for lack of substantiation due to his failure to file
missing income tax returns and other financial documents.31 The notice denying the
Hardship Application contained the pre-printed statement “collection activity on your
account will continue.”32
After receiving the notice denying the Hardship Application, on July 3, 2008,
Burke sent a letter to the MDOR advising Breton that any collection actions taken against
Drake would be in violation of the Code.33 That same month, Breton had a telephone
conversation with Burke, during which she indicated that the MDOR believed that the
28 Id.
29 Id. at ¶ 23.
30 Id. at ¶ 24.
31 SMF at ¶ 23. See also Exhibit B to the Breton Affidavit.
32 Barbara Drake’s Statement of Material Facts Not in Dispute (“DSMF”), Docket Number 69, Exhibit 6.
33 Id. at ¶ 26.
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outstanding taxes remained collectable and that if he wanted to pursue Gregory’s
Hardship Application further, she would need “joint financials, joint bank accounts[,] . . .
Gregory’s missing returns, and proof of significant hardship.”34
On 	August 	6, 	2008, 	shortly 	after 	the 	MDOR 	denied 	Gregory’s 	Hardship
Application, 	Drake 	instituted 	the 	current 	adversary 	proceeding 	(the 	“Adversary
Proceeding”).35 On September 18, 2008, Burke followed up with the MDOR regarding
the denial of the Hardship Application. 36 During the next few months the MDOR
informed him that to complete the Hardship Application Gregory had to file: a statement
of Drake’s financial condition, copies of Drake’s pay stubs, a copy of Drake’s annuity
savings 	account 	statement 	and 	a 	copy 	of 	Drake’s 	bank 	account 	statement 	(the
“Requests”).37 Burke 	provided 	the 	MDOR 	with 	the 	requested 	documents 	soon
thereafter.38 Over the course of several months, the MDOR followed-up the Requests
with further questions and requests to clarify any deficiencies in the documents that
Gregory had provided.39
34 Breton Affidavit ¶ 28. In her affidavit, Breton stated that “I told him I was being told that it was not
discharged,” but it is unclear precisely to what “it” was meant to refer.
35 Docket Number 1.
36 Id. at ¶ 32.
37 Id. at ¶¶ 32-41.
38 DSMF at ¶ 31.
39 Breton Affidavit at ¶¶ 32-41.
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On October 8, 2009, the MDOR re-filed the Notice in the appropriate offices so
that it could extend its duration (the “Re-Filing”). 40 The tax years, the date of the
assessment, and the initial date of filing the Tax Liens were filed as follows: 41
Tax Year 	Date of Assessment 	Date of Lien
1995 	9/25/1997 	5/9/2000
1996 	9/26/1997 	5/9/2000
On November 12, 2009, Drake deposed Breton (the “Breton Deposition”).42
Breton testified regarding the denial of the Hardship Application and the Re-Filing.
During the course of the Breton Deposition, she testified that the MDOR “pursu[ed] the
joint liability of Gregory and Barbara Drake” on account of the Tax Liens “[a]fter the
[Payment Agreement] was broken” like Drake was “any other taxpayer.”43
Subsequently, on December 15, 2009, the MDOR filed a motion for summary
judgment in the Adversary Proceeding 44 in which they agreed that the Drakes’ in
personam liability on the 1995-1996 Taxes was “discharged,” but that they still “hold[] a
lien 	which 	was 	not 	discharged.”45 Later, 	Drake 	amended 	the 	complaint 	(the
“Complaint”) such that, she sought a finding that the MDOR was attempting to collect on
the Tax Liens in violation of the discharge injunction.46 The MDOR timely filed an
40 SMF at ¶ 34.
41 DSMF at ¶ 38. Note that by this time the parties had agreed that the Drakes were no longer liable for the
1993 and 1994 taxes.
42 Docket Number 68, Exhibit 1 (the “Breton Deposition”).
43 The Breton Deposition at pages 18-49.
44 Docket Number 25.
45 Id., Exhibit 7 at 3.
46 Docket Number 39.
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answer (the “Answer”).47 The Answer included counterclaims seeking findings that the
MDOR timely re-filed the Notice for the 1995-1996 Taxes and that the Tax Liens are still
effective.
Subsequently, the MDOR filed a motion for summary judgment asserting that it
did not violate Drake’s discharge injunction (the “Discharge Injunction”), that the Tax
Liens were timely extended and remain in full force and that Drake’s property acquired
both before and after both the filing of the Notice and the filing of her bankruptcy
petition are subject to the Tax Liens.48 Drake filed her opposition thereto and her own
cross-motion for summary judgment.49 The MDOR similarly opposed Drake’s motion
for summary judgment.50
On April 16, 2010 I held a hearing on the motions for summary judgment. At its
conclusion, I took both matters under advisement.
MCMXCV. 	POSITION OF THE PARTIES
The MDOR
In seeking summary judgment and opposing Drake’s Motion for Summary
Judgment, the MDOR argues that the Tax Liens are valid and were not discharged in
Drake’s bankruptcy. 	Furthermore, it argues that the Notice was properly filed prior to
the Petition Date, that the statute of limitations to re-file the Notice was stayed during the
pendency of the Bankruptcy Case, and that it was automatically extended by amendments
to Massachusetts law. 	Next, the MDOR argues that the Tax Liens attached to property
47 See Docket Number 61.
48 Docket Numbers 62 and 71.
49 Docket Numbers 67, 70, and 86.
50 Docket Number 83.
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that Drake had at the time that it filed the Notice as well as after-acquired property,
including the Pension. 	Finally, the MDOR argues that because the Tax Liens remained
valid post-discharge, it could not have violated the discharge injunction. 	Alternatively,
even if it was no longer permitted to collect on account of the Tax Liens, the MDOR
asserts its actions did not rise to the level of a violation of the discharge injunction.
Drake
In her motion for summary judgment and opposition to the MDOR’s Motion for
Summary Judgment, Drake asserts that the tax debt was discharged in bankruptcy.
Furthermore, she argues that the Tax Liens expired before the Re-Filing because the
MDOR failed to re-file the Notice within the proscribed time-period outlined in the
statute, which she asserts was not tolled by the Bankruptcy Case. 	Additionally, Drake
contends that and that the amendments that increased the statute of limitations for re-
filing do not apply to the Tax Liens. Moreover, Drake asserts that even if the Tax Liens
are valid, the Pension is exempt from attachment. 	Finally, Drake argues that the
MDOR’s attempt to collect on the Tax Liens, in conjunction with the Re-Filing, violated
the discharge injunction.
MCMXCVI. 	DISCUSSION
A. The Summary Judgment Standard
Summary judgment should be granted “if the pleadings, the discovery and
disclosure materials on file, and any affidavits show that there is no genuine issue as to
any material fact and that the movant is entitled to judgment as a matter of law.”51 The
51 Fed. R. Civ. P. 56(c), made applicable to adversary proceedings by Fed. R. Bankr. P. 7056.
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burden of proof is on the moving party in the first instance.52 To defeat the motion, the
opposing party must produce substantial evidence of a genuine dispute as to a material
fact.53 A material fact is one that has the “potential to affect the outcome of the suit
under applicable law.”54
In responding to a motion for summary judgment, the opposing party “may not
rely merely on allegations or denials in its own pleading; rather, its response must–by
affidavits or as otherwise provided in this rule–set out specific facts showing a genuine
issue for trial.” 55 Further, “if the opposing party does not so respond, summary judgment
should, if appropriate, be entered against that party.”56 The United States Court of
Appeals for the First Circuit has explained this provision to mean that the absence of a
material factual dispute is a “condition necessary,” but not a “condition sufficient” to
summary judgment.57 The moving party, therefore, must show that it is entitled to
judgment as a matter of law.58
B. The Tax Liens
In Massachusetts, if a person fails to pay income tax, a lien arises at the time of
the assessment of the tax in favor of the Commonwealth “upon all property and rights to
52 Steel Hector & Davis v. Wang Labs., Inc. (In re Wang Labs., Inc.), 155 B.R. 289, 290 (Bankr. D. Mass.
1993).
53 Desmond v. Varrasso (In re Varrasso), 37 F.3d 760, 763 n. 1 (1st Cir. 1994).
54 Nereida-Gonzalez v. Tirado-Delgado, 990 F.2d 701, 703 (1st Cir. 1993).
55 Fed. R. Civ. P. 56(e)(2).
56 Id. (emphasis added).
57 In re Varrasso, 37 F.3d at 764.
58 Id.
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property, whether real or personal, belonging to such person” for payment of the tax,
inclusive of interest and statutory additions, including penalties. 59 Once a notice of the
tax lien is filed in the appropriate county registry of deeds and with the office of the
Secretary of State, the lien has priority against any mortgagee, pledge, purchaser or
judgment creditor who follows.60
The Drakes failed to file timely their joint income tax returns for their 1993-1996
income taxes. 	Upon the filing of their returns, the MDOR assessed the Drakes as
follows:
Period 	Assessment Date 	Assessment Amount
1993 	3/27/1995 	$2.200.00
1994 	2/26/1998 	$550.00
1995 	9/25/1997 	$47,082.00
1996 	9/26/1997 	$2,598.00
On these dates, the Tax Liens arose due to the Drakes’ failure to pay timely the 1993-
1996 Taxes, secured by all property and rights to property, whether real or personal,
belonging to the Drakes.
C. Effects of Drake’s Discharge on the Tax Liens
As I have previously noted, a secured claim is comprised of “two components: the
debtor’s in personam liability on the obligation secured by the lien and the creditor’s in
rem rights to proceed against the collateral.”61 This distinction is relevant in bankruptcy
cases because a Chapter 7 “discharge extinguishes only ‘the personal liability’ of the
debtor” and a secured creditor’s in rem right to pursue the collateral attached to the claim
59 Mass. Gen. Laws ch. 62C, § 50(a).
60 Mass. Gen. Laws ch. 62C, § 50(b).
61 Anderson v. Richards (In re Anderson), No. 07-1328, 2009 WL 4840871, *7 (Bankr. D. Mass. December
10, 2009) (citing Johnson v. Home State Bank, 501 U.S. 78, 81 (1991)).
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“survives or passes through bankruptcy.”62 “Indeed, the Supreme Court of the United
States has expressly stated that ‘[o]rdinarily, liens and other secured interests survive
bankruptcy.’” 63 Accordingly, even if Drake’s in personam liability for the 1995-1996
Taxes was discharged, the MDOR’s ability to enforce the Tax Liens in rem was
unaffected by Drake’s discharge.
D. Continuation of the Tax Liens
i. 	Tolling of the Statute of Limitations
Prior to January 1, 2005, a Massachusetts tax lien had a lifespan limited to six
years from the date of the assessment of the tax. 64 If the lien holder failed to satisfy the
lien within that six year period, the lien would lapse and become unenforceable unless
the notice of lien was appropriately re-filed.65 The law then, as it remains, provided that
the running of the period of limitations on collections is suspended for the period during
which, and for six months after, the MDOR is prohibited from collecting from the debtor
by reason of the debtor (1) being a debtor in a bankruptcy proceeding; and (2) complying
with a plan for payment of the tax promulgated in the bankruptcy proceeding.66
Similarly, the Code provides for the tolling of statutes of limitations for claims against a
debtor the pendency of the bankruptcy case.67
62 Id. (citing Johnson v. Home State Bank, 501 U.S. at 82-83 (1991) (quoting 11 U.S.C. § 524(a)(1))
(emphasis in original)).
63 Id. (citing Farrey v. Sanderfoot, 500 U.S. 291, 297 (1991)).
64 See Mass. Gen. Laws ch. 62C, § 65 Historical Notes.
65 See Mass. Gen. Laws ch. 62C, § 50 Historical Notes.
66 Mass. Gen. Laws ch. 62C, § 65.
67 See 11 U.S.C. § 108(c).
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In 2004, with an effective date of January 1, 2005, Mass. Gen. Laws ch. 62C, §
50(a) was amended such that the duration of tax liens were extended to a period of ten
years from the date of assessment and for subsequent ten year period(s) if a notice is re-
filed. 68 In enacting these statutory changes, the legislature also adopted a transition rule
(the “Transition Rule”) which provided that:
The amendments to chapter 62C, section 50(a), and section 65 are
effective as of January 1, 2005, and will be applicable to any tax
liability…which remains due and unpaid as of January 1, 2005, or which
is assessed on or after January 1, 2005. Any notice of tax lien in favor of
the Commonwealth recorded on a date making it less than 6 years old as
of January 1, 2005 shall, if not sooner discharged as a result of payment of
the tax, continue in full force and effect for a period of ten years from the
date of assessment of the tax without the need for any notice or re-filing
by the commissioner. Thereafter, any further extension of the lien and any
lien re-filing requirements shall be governed by section 50 of chapter 62C
as amended by this act. 69
Drake mistakenly contends that no taxes were due and unpaid on January 1, 2005 and
that the Transition Rule does not apply to her. Though Drake’s in personam liability on
the 1995-1996 Taxes was discharged in bankruptcy, the debt remained outstanding and
the MDOR’s in rem right to proceed against collateral attached by the Tax Liens survived
discharge. Furthermore, I note that Gregory’s personal liability for the 1995-1996 Taxes
was never discharged. 	Hence, a tax liability remained due and unpaid as of January 1,
2005 and the Transition Rule applies.
Section 502(i) of the Code allows certain post-petition claims, such as the 1995-
1996 Taxes, to be treated as if they had arise pre-petition.70 In the Joint Case the MDOR
68 Mass. Gen. Laws ch. 62C, § 50(a).
69 St. 2004, c. 262, § 70 (emphasis added).
70 11 U.S.C. § 502(i).
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elected to treat the 1995-1996 taxes under § 502(i). 	Drake argues that this prevents the
MDOR from asserting that it was prohibited from collecting on account of that debt
within the meaning of the tolling provision of Mass. Gen. Laws ch. 62C, § 65. 	Even if
that were true, the statute of limitations remained tolled pursuant to the Code during the
pendency of the Joint Case.71
The Drakes filed the Joint Case on August 19, 1997. They filed their 1995-1996
returns on September 26, 1997 and September 27, 1997, respectively. 	At this juncture,
only the 1995-1996 Taxes are relevant because the parties stipulated that the others have
been paid. 	The assessment dates for those years were September 25, 1997 and
September 26, 1997 respectively. 	Without any tolling of the six year limitation period
(the “Limitation Period”), the Tax Liens would have expired on September 25, 2003 and
September 26, 2003 respectively. 	Although the 1995-1996 Taxes were pre-petition tax
periods, the automatic stay prevented the MDOR from attempting to collect on account
of those taxes during the pendency of the Joint Case. 	The automatic stay in the Joint
Case ceased upon the dismissal of that case on July 20, 1999. Assuming, arguendo, that
only 11 U.S.C. § 108(c) applied to toll the Limitation Period and not the Massachusetts
statute, the clock on the statutory tax lien, which at the time was six years, was tolled for
the period between the filing of the tax returns and dismissal of the Joint Case, namely, to
July 20, 1999. 72 Had no further events occurred to toll the Limitation Period, it would
have expired on July 20, 2005, six years from July 20, 1999.
71 See 11 U.S.C. § 108(c).
72 See 11 U.S.C. 108(c).
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Nonetheless, the Limitation Period was further tolled, as to Drake, during the
pendency of the Bankruptcy Case from September, 2003 to December 15, 2004, a period
of a year and three months. While the Bankruptcy Case tolled the Limitation Period, the
Transition Rule automatically added four years to the validity of the Tax Liens because
under no circumstances would they have expired prior to January 1, 2005. Accordingly,
the limitation period for the 1995-1996 Taxes was extended to at least January of 2009,
without respect to tolling caused by the Bankruptcy Case. With the tolling caused by the
bankruptcy Case factored in, the Tax Liens would not have expired until October, 2010.
Therefore, when the MDOR re-filed the notices of the Tax Liens on October 8, 2009, it
did so before the expiration of the Notice resulting in the continued validity of the Tax
Liens for another ten years.
ii. 	MDOR’s Statements that the Tax Liens had Expired and was Discharged
Drake asserts that the statement Burke made to the MDOR in the Lien Expiration
Letter that the Tax Liens “expired as a matter of law and that the [MDOR] can no longer
collect from Mrs. Drake for those taxes at issue in her bankruptcy”73 proves that the Tax
Liens had expired. 	Nonetheless, evidentiary hurdles and the special treatment that
governmental entities receive in preventing the use of estoppel against them prohibit
reliance on the Lien Expiration Letter as dispositive evidence that the Tax Liens
ineffective.
A non-response to a letter is generally insufficient to show that the recipient
adopted its contents.74 The proponent of the admission has the burden of proving that the
73 See Lien Expiration Letter.
74 1-15 Weinstein’s Evidence Manual § 15.02[3].
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party’s conduct manifested an intent to adopt the statement.75 The record does not reflect
that the MDOR adopted the statements of the Lien Expiration Letter.
Additionally, it is a well-settled principle that “equitable estoppel will not lie
against the Government as against private litigants.” 76 “When the Government is unable
to enforce the law because the conduct of its agents has given rise to an estoppel, the
interest of the citizenry as a whole in obedience to the rule of law is undermined.” 77
Massachusetts cases are consistent with this federal principle.78
Thus, because Drake has not shown that the MDOR adopted the statements in the
Lien Expiration Letter and the doctrine of estoppel will not bind the MDOR to the
statements contained therein, the Lien Expiration Letter does not prove that the Tax
Liens expired as a matter of law.
E. 	Property Subject to Attachment by the Tax Liens
i. 	After-Acquired Property
As discussed, Drake’s in personam liability for the 1995-1996 Taxes was
extinguished by her discharge, but the MDOR’s in rem right to proceed against the
collateral 	attached 	by 	the 	Tax 	Liens 	survived 	the 	discharge. 	Both 	Federal 	and
Massachusetts tax liens attach to property and rights to property that a debtor owned at
75 Id at [2].
76 Office of Personnel Management v. Richmond, 496 U.S. 414, 419 (1990).
77 Heckler v.Community Health Services of Crawford County, Inc., 467 U.S. 51, 60 (1984).
78 Morton Street LLC v. Sheriff of Suffolk County, 453 Mass. 485, 491-492 (2009) (“We have been reluctant
to apply principles of estoppel to public entities where to do so would negate requirements of law intended
to protect the public interest.”) (citation omitted).
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the time the tax lien was filed and that she obtained after the tax lien was filed.79
However, as of yet, neither the Supreme Court of the United States nor the United States
Court of Appeals for the First Circuit have determined whether a tax lien survives to
attach to a debtor’s property that she acquires post-petition. Nonetheless, courts in other
jurisdictions have determined that post-petition property acquired by a Chapter 7 debtor
is not subject to a pre-petition tax lien. 80
In In re Sanabria, the United States Court of Appeals for the Seventh Circuit
reasoned that allowing a pre-bankruptcy petition tax lien to attach to property acquired
post-petition would frustrate the purpose of the bankruptcy code81 and that it logically
cannot be supposed that the Bankruptcy Code “intended to keep [pre-petition] debts alive
for the purpose of permitting the creation of an enforceable lien upon a subject not
existent when the bankruptcy became effective or even arising from, or connected with,
pre-existing property but brought into being solely as the fruit of the subsequent labor of
79 Luchini v. Commissioner of Revenue, 436 Mass. 403, 406 (2002). See also Glass City Bank of Jeanette,
Pa. v. United States, 236 U.S. 265 (1945); Plymouth Sav. Bank v. United States Internal Revenue Serv., 187
F.3d 203, 206 (1st Cir. 1999); Markham v. Fay, 74 F.3d 1347, 1363-1364 (1st Cir. 1996) (“federal tax lien
attaches to property and rights to property that the taxpayer acquires at any time after assessment).
80 Dishong v. Dep’t of Treasury (In re Dishong), 188 B.R. 51, 55 (M.D. Fla. 1995) (citing United States v.
Sanabria (In re Sanabria), 424 F.2d 1121, 1122 (7th Cir. 1970) (affirming district court ruling limiting
federal tax lien to assets attached at date of petition); In re Braund, 423 F.2d 718, 718-719 (9th Cir. 1970)
(per curiam), cert. denied United States v. McGugin, 400 U.S. 823 (1970) (holding the proper interpretation
is not to extend prepetition tax liens to assets acquired postbankruptcy); Wessel v. United States (In re
Wessel), 161 B.R. 155, 159 (Bankr. D.S.C. 1993) (holding tax liens attached to prepetition right to annuity
payments, but “as the taxes were discharged in this action, it is true that these liens will not attach to
property, or rights to property, the plaintiff acquires post-petition”); Olson v. United States (In re Olson),
154 B.R. 276, 282 (Bankr. D.N.D. 1993) (differentiating liens on nondischargeable taxes from liens on
dischargeable taxes because the latter “survive bankruptcy only as to the debtor’s prepetition property”);
Leavell v. United States, et al (In re Leavell), 124 B.R. 535, 540 (Bankr. S.D. Ill. 1991)(“Tax liens securing
dischargeable debts, however, do not attach to the debtor’s post-petition after-acquired property.”); Frengel
v. Internal Revenue Service (In re Frengel), 115 B.R. 569, 572 (Bankr. N.D. Ohio 1989) (“Post-petition
appreciations in the value of property, as well as after acquired property, inure to the benefit of a debtor
under the fresh start principle.”).
81 In re Sanabria, 424 F.2d at 1123.
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the bankrupt.” 82 This reasoning is uncontroverted.83 Although this case discusses
attachment of prepetition federal tax liens, there is no reason why an analogous principle
should not apply to prepetition state tax liens. Accordingly, I am persuaded that the rule
setout in In re Sanabria and adhered to by other courts around the country is the most
sensible, namely, that a tax lien based on dischargeable taxes can attach to property that
the debtor owned, or had rights to, at the time of the filing of the bankruptcy petition but
does not survive to attach the debtor’s property that is acquired after filing the
bankruptcy petition. Accordingly, I find that the Tax Liens could only attach to property
that Drake possessed or had rights to on the Petition Date.
ii. 	Pension Benefits
Unless property is specifically exempt, a tax lien attaches to “all property and
rights to property, whether real or personal, belonging to such person” for payment of the
tax, inclusive of interest and statutory additions, including penalties. 84 Certain types of
property and are exempt from a levy.85 Only property explicitly exempted in Mass. Gen.
Laws ch. 62C, § 55A is exempt from levy. 86 Courts in Massachusetts have consistently
held that exemptions are “a matter of special favor or grace . . . . to be strictly
construed” 87 and 	to 	be 	“recognized 	only 	where 	the 	property 	falls 	clearly 	and
82 Id. (citing Local Loan Co. v. Hunt, 292 U.S. 234 (1934)).
83 In re Dishong, 188 B.R. at 55.
84 Mass. Gen. Laws ch. 62C, § 50(a).
85 See Mass. Gen. Laws ch. 62C, § 55A.
86 Mass. Gen. Laws ch. 62C, § 55A(c).
87 Macy’s East, Inc. v. Commissioner of Revenue, 441 Mass. 797, 804 (2004) (quoting South Boston Sav.
Bank v. Commissioner of Revenue, 418 Mass. 695, 698 (1994)(internal citation omitted)). .
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unmistakably within the express words of a legislative command.”88 Rights to the
Pension do not fall under any of the nine exemptions provided in Mass. Gen. Laws ch.
62C, § 55A and are therefore subject to attachment by the Tax Liens.
Drake also argues that Mass. Gen. Laws ch. 32, § 19 exempts the Pension from
attachment by a tax lien. 	That statute provides that a right to a pension, such as the
Pension, “and all rights in the funds of [the Pension] shall be exempt from taxation,
including income taxes levied under the provisions of chapter sixty-two, and from the
operation of any law relating to bankruptcy or insolvency and shall not be attached or
taken upon execution or other process.” 89 The MDOR notes that Mass. Gen. Laws ch.
62C, § 5A was enacted over forty years after Mass. Gen. Laws ch 32 § 19, and fails to
include the Pension or income from the Pension as property exempt from attachment.90
Furthermore, Mass. Gen. Laws ch. 62C, § 55A was drafted with the explicit intent that it
trump any other state exemption statutes as is clear by the words of the statute which
state that “notwithstanding any other law, no property or rights to property shall be
exempt from levy other than the property specifically made exempt by subsection (a).”91
The principle of leges posteriors, priores contrarias abrogant holds that later-enacted
laws are given precedent over conflicting pre-existing laws.92 Accordingly, since Mass.
Gen. Laws ch. 62C, § 55A(c) conflicts with and was enacted after ch. 32, § 19 and
88 State Tax Comm’n v. Blinder, 336 Mass. 698, 703 (1958).
89 Mass. Gen. Laws ch. 32, § 19 (emphasis added).
90 Mass. Gen. Laws. ch 62C, § 55A. See also Mass. Gen. Laws ch 32, § 19.
91 Mass. Gen. Laws ch. 62C, § 55A(c).
92 See Watt v. Alaska, 451 U.S. 259, 285 (1981).
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because the former statute explicitly trumps the latter, Mass. Gen. Laws ch. 32, § 19 does
not exempt the Pension from attachment by the Tax Liens.
While Drake had not begun to collect on her right to the Pension at the time that
the MDOR filed the notice of the Tax Liens, a teacher becomes eligible to collect her
retirement benefits when she meets either one of two sets of criteria: (1) age 55 or older
and with ten years of qualified service; or (2) with twenty years of qualified service
regardless of age.93 On the Petition Date, Drake was over the age of 55 and had over ten
years of qualified service in the system, so she had a vested right to the Pension.
Therefore, though Drake may not have collected benefits from the Pension as of the
Petition Date, she still had a right to that property.
The MDOR argues that the Tax Liens attach to the value of the Pension as of the
Petition Date and any additional post-petition value of the Pension. 	The cases it cites
from districts and circuits from around the country are all in agreement. 	Unfortunately
for the MDOR, they all agree that a pre-petition tax lien is limited to the value of a
debtor’s present equitable interest in future income from an instrument, such as the
Pension or a trust, and does not attach to post-petition property. 94
Because the Pension benefits are not explicitly exempted from attachment and
Drake had rights to the Pension benefits as of the Petition Date, the Tax Liens attached to
the Pension. Nonetheless, because property acquired after the Petition Date is not subject
93 Mass. Gen. Laws ch. 32, §§ 5, 10. See also, the Massachusetts Teachers’ Retirement Board’s publication
Your MTRS Benefits: A Guide for Active Members, (April 2006) at p. 16.
94 See Internal Revenue Service v. Orr (In re Orr), 239 B.R. 130 (S.D. Tex. 1998); Wessel v. United States
(In re Wessel), 161 B.R. 155 (Bankr. D. S.C. 1993); and United States v. Rogers, 558 F. Supp. 2d 774 (N.D.
Ohio 2008).
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to attachment by the pre-petition Tax Liens, the Tax Liens attach to the Pension only to
the extent of its value on the Petition Date.
F. 	The Discharge Injunction
Section 524(a)(2) of the Bankruptcy Code “operates as an injunction against . . .
an act[] to collect, recover or offset any such debt as a personal liability of the debtor.”95
The analysis for determining whether a creditor has violated the discharge injunction
must begin by first identifying the act that is alleged to have occurred. 	“In assessing
violations of . . . . the discharge injunction, the core issue is whether the creditor acted in
such a way as to ‘coerce’ or ‘harass’ the debtor improperly.”96 In determining whether a
violation of the discharge injunction has occurred “the line between forceful negotiation
and improper coercion is not always easy to delineate, and each case must therefore be
assessed in the context of its particular facts.”97
In the current proceeding, Drake’s in personam liability for the taxes were
discharged but the MDOR’s in rem right to proceed against the collateral attached by the
Tax Liens survived. 	Because Gregory did not receive a bankruptcy discharge, he
retained his in personam liability for the debt and the MDOR also had an in rem right to
proceed against property attached by the Tax Liens.
The particular record facts material to my assessment of objective coercion are:
(i) Breton’s statement that it was the MDOR’s position that Drake’s liability on the Tax
Liens had not expired; (ii) Breton asking Burke for information and documents from
Drake regarding her liability on the Tax Liens; (iii) the letter addressed solely to Gregory
95 11 U.S.C. § 524(a)(2).
96 Pratt v. General Motors Acceptance Corporation (In re Pratt), 462 F.3d 14, 19 (1st Cir. 2006).
97 Id.
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Drake denying the Hardship Application and indicating that “collection activity on your
account will continue”; (iv) Breton informing Burke that in order to consider Gregory’s
Hardship Application he needed to file a more complete set of documents which included
some documents pertaining to Drake’s financials jointly with Gregory and solely,
including: (a) financial statements, (b) bank account statements, (c) a statement of
Drake’s financial condition, (d) copies of Drake’s pay stubs, and (e) a copy of Drake’s
annuity savings account statement; (v) the Re-Filing on October 8, 2009; and (vi)
Breton’s deposition testimony that after the Drakes breached the Payment Agreement,
the MDOR tried to collect from Drake like she was “any other taxpayer.”
I find that the material facts fail to show that the MDOR improperly coerced
Drake to pay it. 	The MDOR’s only activities that could be considered “active” were
document requests made to Drake’s attorney that were necessary for it to consider
Gregory’s Hardship Application. Accordingly, I find that the MDOR did not violate the
discharge injunction.
V. CONCLUSION
In light of the foregoing, I will enter an order granting in part and denying in part
both motions for summary judgment consistent with my above findings.
_______________________
____________________________
William C. Hillman
United States Bankruptcy Judge
Dated: July 19, 2010
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