U.S.A. v. Stanley

Citation:
5th Circuit Opinion of Dec. 12, 2014 in Case No. 13-60704 -Not Published
Tag(s):
Ruling:
All four rulings of the District Court were upheld: (1) Debtor's argument that the government was required to appeal his discharge in his prior bankruptcy proceedings, resulting in estoppel or issue preclusion, was waived as the Debtor had failed to raise it in District Court Case in response to the government's motion for summary judgment, despite listing it as an affirmative defense in his Answer; (2)The government met its burden under Section 523(a)(1)(C) of establishing that the Debtor willfully attempted to evade his tax liability, dispite evidence that he suffered from bipolar disorder; (3) Invective statements by the judge in connection with his ruling on the summary judgment motion do not establish judicial bias, nor are they grounds for recusal; and (4) Discharge proceedings are equitable in nature and the bankruptcy litigants have no Seventh Amendment right to jury trial in dischargability proceedings.
Procedural context:
The Debtor filed a Chapter 7 in May of 2009 and had scheduled federal tax liabilities for year 1998-2010. He received his discharge in January of 2011 and the Govenment sued him in August of 2011 in District Court to reduce his tax liabilities to a judgment. The Government won on summary judgment on the issue as to whether tax years 2005-2008 were excepted from the Debtor's discharge as they had been assessed in the 3 years before his bankruptcy was filed. After a bench trial, the District Court found for the government as to tax years 1998-2004 and the Debtor appealed both rulings.
Facts:
Debtor, Mr. Stanley, was a doctor of osteopathic medicine. He had filed late tax returns for 1998-2009 and had not paid his tax obligations in full, despite IRS collection efforts. There was no dispute as to the amounts of the liabilities. The Debtor, however, asserted that he had not willfully attempted to evade or defeat paying his taxes as he suffered from type II bipolar disorder. Debtor's expert testified as to his condition and that he suffered from depressive episodes that could cause impairment of occupational and routine functioning. The expert testified that there were periods were he had no syptoms and then other times in which he slipped into depressions and periods of irresponsible conduct. Since 523(a)(1)(C) has a mental state requirement as well as a conduct requirement, Debtor argued that he was prevented from having the requisite "willful" mental state. The evidence showed that over the same years the Debtor had been able to continue his practice of medicine and monitor his other debts. The evidence showed he has entered into several complicated real estate transactions wherein he had put money in his wife's name, he had purchased numerous luxury goods, and he had made timely payments on numerous obligations. He had also established a business which failed to withhold any income taxes and distributed cash to his wife. The District Court found that these actions demonstrated that the Debtor had the ability to pay his taxes and willfully attempted to evade them.
Judge(s):
Fifth Circuit Court Judges King, Dennis and Clement

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