- Case Type:
- Consumer
- Case Status:
- Affirmed
- Citation:
- 21-8003 (6th Circuit, Dec 28,2021) Not Published
- Tag(s):
-
- Ruling:
- The U.S. Bankruptcy Appellate Panel of the Sixth Circuit (BAP) affirmed the authority of a bankruptcy judge to impose conditions on the voluntary, but with prejudice, dismissal of an adversary proceeding, finding no error in the discretionary decision to do so by the Western District of Tennessee's U.S. Bankruptcy Court (BC), per rule 7041 of the Federal Rules of Bankruptcy Procedure (Rules together; Rule [] singly), which incorporates rule 41 of the Federal Rules of Civil Procedure (Civil Rules together; Civil Rule [] singly), a reading fortified by Rule 7037, which subsumes Civil Rule 37.
- Procedural context:
- Having been sanctioned twice for discovery violations, Jack W. Harang (Harang, DR, or Plaintiff) moved to dismiss the adversary proceeding that he himself had started against the Internal Revenue Service (IRS), in the seemingly vain hope of winning a declaration that some of his tax debts were dischargeable, with prejudice and pursuant to Rule 41. At a hearing on the dismissal motion held on February 11, 2021, the BC announced its decision to dismiss the case with conditions and directed the IRS's counsel to prepare an order, assuming the parties would agree on its form. When no such accord followed, perhaps unsurprisingly, the BC prepared and entered its own Order of Dismissal with Prejudice (Dismissal Order).
In the Dismissal Order, which it formally entered on February 17, 2021, the BC asserted its authority to impose conditions under Rule 41 and limned its rationale for imposing conditions on its with prejudice dismissal. First, considering "the protracted and tortious [sic] history of this case," the BC saw no issue in conditioning dismissal upon the inclusion of the factual findings it had made and set forth within its two earlier sanctions orders. Second, dismissal "with prejudice" struck the BC as equally proper "because that was the request of the Plaintiff, which was not withdrawn, and because the United States was ready to proceed to trial when the request for dismissal was made.
Unhappy that the BC reiterated and incorporated its prior factual findings in the Dismissal Order, the DR timely appealed, focusing his briefing on two arguments: (1) that the Dismissal Order "improperly attempts to create some sort of preclusive effect in future litigation," and (2) that the BC "lacked authority to impose any conditions on the dismissal because he was volunteering to dismiss the complaint 'with prejudice,'"
- Facts:
- The DR filed an individual chapter 7 petition on June 6, 2018, listing liabilities well in excess of his assets. On August 30, 2018, acting as a plaintiff, the DR filed a complaint in the BC against the IRS seeking a declaration that some of his tax debts were dischargeable, notwithstanding the possible exception to discharge under 11 U.S.C. § 523(a)(1). The IRS answered the complaint. It then served discovery requests.
The IRS' dissatisfaction with the DR's responses led to two different sanction orders. Upon reviewing the DR's responses, the the IRS moved to compel answers. Eventually, it even sought discovery sanctions, which the BC imposed in a January 30, 2020, order (First Order). As a sanction, the First Order stated that “[f]or all purposes in this case going forward," it "would presume as established and ... [the DR would] .... be prohibited from contesting that the ... [DR] had sufficient income to pay his tax liabilities for the 2007 through 2008 tax years, but consciously chose not to do so.” When a witness later refused to appear at a deposition at the DR's direction, the BC entered a second sanctions order in which three additional factual findings were made (Second Order).
After these edicts' issuance, trial loomed. On January 15, 2021, the BC issued an order scheduling the trial for February 16, 2021. Six days later came the motion to dismiss whose ultimate disposition prompted the DR's appeal.
- Judge(s):
- Scott W. Dales; Randal S. Mashburn; and Tracey N. Wise
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