US v. Oscher (In re J.H. Investment Services, Inc.)

Summarized by Lynn Hinson , Dean Mead Egerton Bloodworth Capouano & Bozarth PA
14 years 3 months ago

Citation:

IN RE J.H. Investment Services, Inc. United States of America vs. Steven Oscher, Chapter 11 Trustee; 11th United States Court of Appeals N0. 10-15627 (unpublished)

Tag(s):

Ruling:

The IRS was not entitled to receive a distribution from a carve out fund set aside for the Debtor's unsecured creditors. The basis for the ruling is that the proof of claim which filed by the IRS characterized its entire claim as secured. The proof of claim did not show that any portion of the claim was unsecured. The Court concluded that creditors did not have an opportunity to object to any unsecured claim by the IRS because they did not have notice that the IRS was seeking a deficiency claim. The Court also concluded that section 506(a)(1) of the United States Bankruptcy Code does not automatically assert a deficiency claim.

Procedural context:

The United States Bankruptcy Court for the Middle District of Florida ruled that the IRS was not entitled to receive a distribution from a carve out fund set aside for the Debtor's unsecured creditors. The basis for the Bankruptcy Court's ruling was that the proof of claim which was submitted by the IRS showed the claim as fully secured. The IRS appealed the ruling of the United States Bankruptcy Court to the United States District Court. The Bankruptcy Court's ruling was affirmed. The IRS then appealed to the 11th United States Court of Appeals, which affirmed the ruling of the District Court.

Facts:

The Debtor engaged in a fraudulent real estate investment scheme. After the fraudulent scheme was discovered, the creditors filed an involuntary Chapter 11 case. The Bankruptcy Court appointed a Chapter 11 Trustee. The Trustee located and sold 40 real properties that belonged to the Debtor. The Bankruptcy Court ordered that 1% of the sale proceeds would be set aside for the unsecured creditors. The IRS filed several proofs of claim. One of the claims chacterized the entire IRS debt of $46,000,000.00 as secured. The proof of claim did not show any portion of the claim as unsecured. The Bankruptcy Trustee later filed a liquidating plan. The disclosure statement reflected that the estate assets had a value of approximately $750,000.00. The liquidating plan expressly excluded the IRS claim from the distribution of the "carve out" to unsecured creditors. The IRS objected to confirmation of the plan on the basis that the claim was allowed under section 502 and that the claim was entitled to priority. The IRS asserted that the plan violated section 1129(a)(9)(C) because the plan provided for payment of the carve out fund to the unsecured creditors before paying the IRS priority claim in full. The Trustee argued that the proof of claim which was filed by the IRS did not assert an unsecured claim and, therefore, the IRS did not have an unsecured claim, either priority or general. The Bankruptcy Court ruled in favor of the Trustee, and the appeals followed.

Judge(s):

Circuit Judges Barkett, Marcus and Cox.

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