Chase Manhattan Bank USA v. Rollings

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
JOSEPH W. ROLLINGS and
JANET S. ROLLINGS,
Debtors. 	No. 7-07-11657 SL
CHASE MANHATTAN BANK, USA
Plaintiff,
v. 	Adv. No. 07-1151 S
JANET S. ROLLINGS,
Defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on Chase Manhattan Bank,
USA’s (“Plaintiff’s”) Motion for Summary Judgment (doc 21) with
accompanying Affidavits (docs 22 and 23). 	Defendant Janet
Rollings filed a response (doc 24), to which Plaintiff replied
(doc 25). 	The Court has reviewed the materials on file and
considered the arguments of the parties, and has consulted other
materials and finds that the Motion is not well taken and should
therefore be denied. 	This is a core proceeding. 	28 U.S.C. §
157(b)(2)(I).
Summary judgment is proper when there is no genuine issue
as to any material fact and the moving party is entitled to a
judgment as a matter of law. 	Bankruptcy Rule 7056(c). 	In
determining the facts for summary judgment purposes, the Court
may rely on affidavits made with personal knowledge that set
forth specific facts otherwise admissible in evidence and
sworn or certified copies of papers attached to the
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affidavits. 	Fed.R.Civ.P. 56(e). 	When a motion for summary
judgment is made and supported by affidavits or other
evidence, an adverse party may not rest upon mere allegations
or denials. 	Id. 	The court does not try the case on competing
affidavits or depositions; the court's function is only to
determine if there is a genuine issue for trial. 	Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). 	However,
regardless of whether respondent answers the motion for summary
judgment, the Court must still review the motion to determine
whether Plaintiffs are entitled to judgment as a matter of law.
See Bankruptcy Rule 7056(c).
In this case Plaintiff listed 10 facts it contended were not
in dispute. 	Debtor admitted these 10 facts. 	However, as the
parties agree, there is a legal question as to the interpretation
of the facts, and therefore a question of who is entitled to
judgment.
UNDISPUTED FACTS
1. 	This is a core proceeding over which this Court has
jurisdiction under title 28 U.S.C. § 157(b).
2. 	Defendant is the Debtor in this chapter 7 case. 	Plaintiff
is a creditor of Debtor.
3. 	On or about September 17, 2000, Debtor applied for and was
given a credit card account, from Plaintiff, account number
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XXXX XXXX XXXX 4202. 	As of April 6, 2007, the credit card
account had a credit limit of $14,700.00.
4. 	On our about April 3, 2007, Debtor and her husband completed
preparation and signed their 2006 income tax return,
calculating their tax liability at $2,267.00.
5. 	Although their 2006 income tax return listed their daughter,
Jolene Rollings as a dependent, their tax return omitted any
claim for an Earned Income Credit under line item 66.
6. 	On or about April 6, 2007, Debtor made a cash advance from
Plaintiff’s credit card account payable to the United States
Internal Revenue Service in the amount of $2,267.00.
Plaintiff honored Debtor’s cash advance according to the
tenor of Debtor’s instructions.
7. 	Debtor filed her bankruptcy proceedings on July 10, 2007.
8. 	Shortly after August 27, 2007, Debtor and her spouse
received an IRS notification, confirming that the IRS had
changed their account to correct their earned income credit,
and that with the correction, Debtor and her spouse were
entitled to a $2,747.00 credit, taking into consideration
the $2,267.00 they submitted to the IRS in April 2007. 	The
notification also enclosed the IRS check for $2793.14,
inclusive of $46.14 interest accrued on debtor’s payment.
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9. 	Upon receipt of the IRS refund, Debtor and her spouse
transferred the check to the Chapter 7 Trustee as funds due
to Debtor’s bankruptcy estate.
10. 	No payments were made on Debtor’s account concerning this
cash advance, and the advance continues to be outstanding
and unpaid. 	The parties stipulated that at the current
applicable interest rate on Debtor’s account, the balance,
if due from Debtor, as of her July 10, 2007 bankruptcy
filing date would be $13,198.89, with interest continuing to
accumulate from that date at the card rate of 29.99 percent
per annum. 	The Court refuses to accept this fact. 	The
bankruptcy was filed a little over three months after the
cash advance. 	It is not possible for a $2,267.00 debt to
accrue $10,931.89 of interest in three months, or even a
year and a half (measured from the date of the advance to
the date of the filing of Sundra Williams’ affidavit – doc
23), at 29.99% interest. 	Rather, it would appear that Ms.
Williams has put into the affidavit (Paragraph 4) the entire
balance of the account as of the petition date. 	Therefore,
the Court would have required a further accounting should it
have awarded to Plaintiff a judgment in this adversary
proceeding.
THE STATUTE
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The relevant statute is 11 U.S.C. § 523(a)(14), which
states:
(a) A discharge under section 727 ... of this title does not
discharge an individual debtor from any debt--
...
(14) incurred to pay a tax to the United States that would
be nondischargeable pursuant to paragraph (1).
Paragraph (1) of section § 523(a) makes nondischargeable certain
tax debts accrued within certain periods of time before a
bankruptcy filing. 	The question is whether the tax in this case
would have been a § 523(a)(1)(A) nondischargeable tax, or perhaps
more accurately, whether there was a tax at all in this case.
CONCLUSIONS OF LAW
Plaintiff argues that Debtor’s behavior fits squarely within
the statute: she incurred a debt to Plaintiff and used the
proceeds to pay a federal tax debt (of the kind) that would have
been nondischargeable. 	Plaintiff argues that the analysis should
stop at that point, but provides five reasons that, even if the
refund is considered, the debt should still be nondischargeable.
Debtor, on the other hand, argues that there was no debt because
the IRS later returned the income tax payment to them and they
turned it over to the trustee. 	She also argues that the cash
advance was more than 90 days before the bankruptcy filing, and
that there was no allegation of an intent to defraud Plaintiff.
The Court will address Debtor’s arguments and then Plaintiff’s
arguments.
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Taking Debtor’s arguments in reverse order, intention is not
relevant in a § 523(a)(14) analysis. 	See MBNA America v.
Parkhurst (In re Parkhurst), 202 B.R. 816, 820 (Bankr. N.D. N.Y.
1996) (only element to prove in a § 523(a)(14) case is that
monies were used to pay off a nondischargeable income tax
liability). 	Also compare, e.g. § 523(a)(2)(B)(iv) (creditor must
prove debtor’s “intent to deceive” to prevail on false financial
statement claim); also compare § 548(a)(1)(A) (“made such
transfer ... with actual intent to hinder, delay or defraud...”)
with § 548(a)(1)(B) (no intent to hinder, delay or defraud
requirement). 	Similarly, § 523(a)(14) has no time limit during
which the debt must have been incurred. 	Compare §
523(a)(2)(C)(I) (debts aggregating more than $500 owed to a
single creditor incurred on or within 90 days before the
bankruptcy filing are presumed nondischargeable). 	If Congress
intended there to be a time period element to when a § 523(a)(14)
debt must be incurred it would have included one in the statute.
Debtor’s final argument, that there was no debt, is more
difficult to address. 	The statute makes nondischargeable credit
card debts “incurred to pay a tax...that would be
nondischargeable....” 	Debtor really argues that there was no tax
debt, so it was impossible for her to incur a debt to pay a non-
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1 “The fact is, there is no non-dischargeable debt because
there is no debt.” 	Doc 24 at 2.
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existent tax and therefore § 523(a)(14) does not apply. 1
Unquestionably Debtor incurred a debt to Plaintiff to make a
payment to the IRS, but was it a tax, or if so, “would [it] be
nondischargeable”?
Our tax system is based upon a self-assessment system. 	G.M.
Leasing Corp. v. United States, 429 U.S. 338, 350 (1977)
(acknowledging our self-assessment tax system.) 	“Once the tax is
assessed, the taxpayer will owe the sovereign the amount when the
date fixed by law for payment arrives.” 	Bull v. United States,
295 U.S. 247, 259 (1935). 	“The assessment is given the force of
a judgment, and if the amount assessed is not paid when due,
administrative officials may seize the debtor’s property to
satisfy the debt.” 	Id. at 260. 	The date that self-assessed
income taxes are due is the last date fixed for filing the return
(determined without regard to any extension of time for filing
the return). 	26 U.S.C. § 6151(a) and 6072(a); United States v.
Ressler, 433 F.Supp. 459, 463 (S.D. Fla. 1977), aff’d., 576 F.2d
650 (5 th Cir. 1978), cert. denied, 440 U.S. 929 (1979). 	In this
case, that date was April 15, 2007 for the Debtors’ calendar year
2006 return. 	See 26 U.S.C. § 6072(a).
However, Bull v. United States and United States v. Ressler
have as an underlying assumption that the taxpayer actually owes
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2 For this reason, cases such as American Centurion Bank,
Optima Account v. Gavin, 248 B.R. 464 (Bankr. M.D. Fla. 1999) are
inapposite, since in those cases debtor did owe the tax in
question.
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a debt – a net obligation – to the government. 	United States v.
Bull, 295 U.S. at 259 (“[T]he sovereign has an enforceable claim
against every one within the taxable class for the amount
lawfully due from him.” 	Emphasis added.); United States v.
Ressler, 433 F.Supp. at 460 (“Defendant Ressler does not contest
the merits of the various assessments, and has conceded that the
tax assessments against him are correct and valid.”). 2 	In
consequence, the case law and filing procedures set out above do
not lead to the conclusion that Debtor owed a debt; rather, that
Debtor owed a debt is an assumption in the procedural analysis.
The mere fact therefore that Debtor filed a tax return that on
its face showed that she and her husband were obligated to the
United States cannot by itself constitute the basis for finding
that there was any obligation, much less that the obligation was
“a tax to the United States that would be nondischargeable
pursuant to paragraph (1).”
The Court finds that on April 15, 2007 the Debtors did not
owe the amount reported on their income tax return. 	Therefore,
the Court finds that there was no tax due as described by §
524(a)(14) when Debtors made the payment, albeit the payment was
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3 Plaintiff has not alleged that Debtor paid the tax with a
credit card expenditure, knowing that no tax was owed, for the
purpose of obtaining a refund at the expense of Plaintiff. 	Such
an action might constitute fraud pursuant to § 523(a)(2). 	In
this instance, Debtor immediately turned the entire refund,
including the $480 which exceeded the credit card charge, over to
the chapter 7 trustee.
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made with the proceeds of the debt incurred. 3 	At a minimum, the
payment was not nondischargeable under § 523(a)(1); any attempt
by the IRS to hold the debt nondischargeable would fail.
Plaintiff’s arguments do not suffice to change this
conclusion. 	Doc 21, at 4-6. 	Plaintiff first argues that Debtor
and her husband are bound by their characterization in their tax
return that they in fact owed a debt to the government.
Plaintiff provides no case or statutory support for the
proposition. 	More to the point, however, is that Debtor’s
mistaken “admission” that she and her husband owed a debt to the
government does not make it a fact that they did. 	The
government’s subsequent correction of their mistaken filing
demonstrates that no debt was owed.
In a related vein, the Court disagrees with Plaintiff’s
conclusion drawn from the literal wording of § 523(a)(14).
Plaintiff succinctly argues that “because defendant’s debt was
admittedly ‘incurred to pay a tax to the United States,’, and
that tax was of the sort that ‘would be nondischargeable under
paragraph 1,’ the defendant’s debt should be likewise
nondischargeable.” 	Plaintiff’s Reply at 2 (doc 25). 	By itself
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Plaintiff’s construction of the statutory language is quite
reasonable, and the argument certainly has a surface
plausibility. 	However, the Court has the obligation to interpret
the statute holistically. 	United Savings Assoc. of Texas v.
Timbers of Inwood Forest Assoc., Ltd., 484 U.S. 365, 371 (1988).
And consistent with the obligation to construe the Code
“liberally in favor of the debtor and strictly against the
creditor”, Gullickson v. Brown (In re Brown), 108 F.3d 1290,
1292-93 (10 th Cir. 1997) (discharge action), the Court reads into
the language of the statute the requirement that the term “tax”
include the notion of a debt owed to the United States. 	This
interpretation would also be consistent with the obvious purpose
of the statute; to wit, to deal with debtors who would convert
nondischargeable tax debt into otherwise dischargeable credit
card debt, to the creditor’s detriment. 	American Express
Centurion Bank v. Gavin, 248 B.R. at 465.
Second, as stated above, Debtor’s intent is completely
irrelevant to the issue. 	It is irrelevant for a creditor as
well.
Third, Plaintiff’s argument that Debtor is the proper party
to be assigned the risk of an adverse result, while creative, is
irrelevant. 	To begin with, while it is true that once Debtor
used the credit card to make the payment (and the payment was
processed by Plaintiff), Plaintiff lost any ability to protect
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its own interests, that is true with respect to any instance in
which Debtor used the card. 	Plaintiff really lost control not so
much when this payment was made but when it issued the card and
allowed Debtor to use it. 	In addition, the Court is governed by
what the statute says. 	E.g., Lamie v. United States Trustee, 540
U.S. 526, 534 (2004) (“[W]hen the statute’s language is plain,
the sole function of the courts ... is to enforce it according to
its terms.” 	Internal punctuation and citation omitted.). 	The
statute does not call for the Court to analyze where the
liability should fall, but merely to do what the statute says.
And in any event, merely because the funds went to the trustee at
the expense of the creditor is not a reason to make a debt
nondischargeable. 	Otherwise, debts such as those arising from
the trustee’s recovery of preferential transfers would be
candidates for nondischargeability also.
Fourth, while “claims are set as of the [petition] date”,
the determination of what claims are actually owed is a process
that takes place postpetition. 	Indeed, sorting out claims and
determining their validity is at the core of the bankruptcy
process.
Fifth, it is probably true that if the government had not
issued a refund, Debtor would continue to be liable for the debt,
unless Debtor proved she did not owe the debt on the payment date
even if she did not receive a refund. 	But those are not the
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4Defendant did not file her own motion for summary judgment.
However, when one party moves for summary judgment and the non-
movant is entitled to judgment on those same facts it is proper
for the Court to enter summary judgment for the non-movant sua
sponte. 	See Coach Leatherware Co., Inc. v. Ann Taylor, Inc., 933
F.2d 162, 167 (2 nd Cir. 1991); Aviation Development Co. PLC v. C
& S Acquisition Corp., 1999 WL 123718, *2 (S.D.N.Y. 1999).
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facts of this case, which include a government refund that proves
that there was no debt owed to the government.
Therefore, the Court finds that the debt owed to Plaintiff
is dischargeable in Debtor’s bankruptcy.
CONCLUSION
The Court finds that Plaintiff’s motion for summary judgment
is not well taken and should be denied. 	Judgment will be issued
in favor of Debtor and against Plaintiff 4.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	February 12, 2009
copies to:
Kelly Albers
Attorney for Plaintiff
Law Office of Kelly P. Albers, P.C.,
650 Montana Ave Ste D
Las Cruces, NM 88001-4294
Kieran F Ryan
Attorney for Defendant
Ryan Law Office
PO Box 26
Las Cruces, NM 88004-0026
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