Nicolaus v. United States of America
Filing
11
ORDER re 2 Bankruptcy Appeal filed by Anthony J Nicolaus. The Bankruptcy Courts February 8, 2018 Ruling granting the United States Motion to Vacate the Order Sustaining Debtors Objection to IRS Proof of Claim No. 2 is affirmed. Signed by Judge Linda R Reade on 01/03/2019. (jjh)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF IOWA
CENTRAL DIVISION
IN RE ANTHONY J. NICOLAUS,
Debtor.
No. 18-CV-3018-LRR
ORDER
ANTHONY J. NICOLAUS,
Appellant,
vs.
UNITED STATES OF AMERICA o/b/o
INTERNAL REVENUE SERVICE,
Appellee.
TABLE OF CONTENTS
I.
INTRODUCTION...............................................................................2
II.
STANDARD OF REVIEW....................................................................2
III.
FACTUAL AND PROCEDURAL BACKGROUND......................................2
A.
B.
C.
IV.
ANALYSIS........................................................................................5
A.
B.
C.
V.
Bankruptcy Court Proceedings.......................................................2
Bankruptcy Court Ruling.............................................................4
The Appeal...............................................................................4
Parties’ Arguments.....................................................................5
Applicable Law..........................................................................7
Application.............................................................................12
CONCLUSION.................................................................................17
I. INTRODUCTION
This is an appeal from the United States Bankruptcy Court for the Northern District
of Iowa (“Bankruptcy Court”).
See In re Nicolaus, Bankr. No. 15-01757.
The
Bankruptcy Court entered a Ruling (Bankruptcy docket no. 135) granting CreditorAppellee United States of America’s (“the government”), on behalf of the Internal
Revenue Service (“IRS”), “Motion to Set Aside or Vacate the [Bankruptcy Court’s
February 8, 2018 Ruling] Sustaining Debtor[-Appellant Anthony J. Nicolaus’s] Objection
to IRS Proof of Claim No. 2” (“Motion to Vacate”) (Bankruptcy docket no. 113). Debtor
appeals.
II. STANDARD OF REVIEW
A district court has jurisdiction to hear appeals from final judgments, orders and
decrees of bankruptcy judges. 28 U.S.C. § 158(a). On appeal from a bankruptcy court,
the district court acts as an appellate court and reviews the bankruptcy court’s factual
findings for clear error and its conclusions of law de novo. In re Cedar Shore Resort,
Inc., 235 F.3d 375, 379 (8th Cir. 2000).
III. FACTUAL AND PROCEDURAL BACKGROUND
A. Bankruptcy Court Proceedings
On December 30, 2015, Debtor filed a petition for relief under Chapter 7 of the
United States Bankruptcy Code (Bankruptcy docket no. 1). On February 11, 2016, the
IRS filed Proof of Claim No. 2. See Appellant’s Appendix (“Appendix”) (docket no. 5-1)
at 5-9. The proof of claim listed a total of $92,877.89 in secured and unsecured claims
associated with civil penalties for failure to pay withholdings taxes. Id. at 8. On January
26, 2017, Debtor filed “Objection to IRS Proof of Claim No. 2 (Bankruptcy docket no.
91). On January 27, Debtor filed “Notice of Objection to Proof of Claim No. 2 and
Deadline for Response” (Bankruptcy docket no. 93). Debtor mailed the notice to the
following addresses:
2
(1)
Internal Revenue Service
P.O. Box 7346
Philadelphia, PA 19101-7346
(2)
Internal Revenue Service
Attn: Mary Jo Rachford
425 Second Street Southeast, Suite 500
Cedar Rapids, IA 52401
See Appendix at 69. On February 22, 2017, Debtor filed a second “Notice of Objection
to Proof of Claim No. 2 and Deadline for Response” (Bankruptcy docket no. 96) because
the first notice did not include a copy of the objection to the IRS’s proof of claim. Id.
Debtor mailed the second notice, including a copy of the objection, to the same two
addresses as the first notice. Id. at 70. The IRS did not respond to Debtor’s objection by
the deadline provided in the second notice.
On March 17, 2017, the Bankruptcy Court entered an “Order Sustaining Debtor’s
Objection to IRS Proof of Claim No. 2" (Bankruptcy docket no. 97). On December 21,
2017, the government filed the Motion to Vacate. On January 12, 2018, Debtor filed a
Response (Bankruptcy docket no. 118) to the Motion to Vacate. On January 19, 2018, the
government filed a Reply (Bankruptcy docket no. 120).
On January 29, 2018, the Bankruptcy Court held a telephonic hearing on the Motion
to Vacate. See Appendix at 167-79 (transcript of the hearing). The government’s position
was that the IRS cannot sue or be sued; and therefore, in any litigation involving federal
taxes, the proper party is the United States. See Appendix at 169. The government
maintained that Debtor’s “Notice of Objection to Proof of Claim No. 2 and Deadline for
Response” should have been served on the United States Attorney General and the United
States Attorney for the Northern District of Iowa, and because it was not, the Motion to
Vacate should be granted. Id. at 170. The debtor’s position was that service on the United
States Attorney General and the United States Attorney for the Northern District of Iowa
3
was unnecessary because “service is not a prerequisite to jurisdiction,” and the IRS had
proper notice. Id. at 171, 173-74. At the close of the hearing, the Bankruptcy Court took
the Motion to Vacate under advisement. See January 30, 2018 Text Order (Bankruptcy
docket no. 126).
B. Bankruptcy Court Ruling
On February 8, 2018, the Bankruptcy Court entered a “Ruling on Motion to
Vacate” (“Ruling”) (Bankruptcy docket no. 135).
See generally In Re Nicolaus,
Bankruptcy No. 15-01757, 2018 WL 799152 (Bankr. N.D. Iowa Feb. 8, 2018). The
Bankruptcy Court concluded that, “[a]lthough it is clear that Debtor sent basic ‘notice’ to
the IRS, [Debtor] did not serve the United States in the manner required by [Federal Rule
of Bankruptcy Procedure] 9014 and . . . 7004.” Ruling at 10. The Bankruptcy Court also
determined that, because Debtor did not properly serve the United States, the Bankruptcy
Court lacked “jurisdiction over the United States when it filed [the] March 17, 2017
[O]rder sustaining Debtor’s objection.” Ruling at 13. Therefore, the Bankruptcy Court
granted the government’s motion and vacated the March 17, 2017 Order. See Ruling at
13-14.
C. The Appeal
On February 19, 2018, Debtor filed a Notice of Appeal (Bankruptcy docket no.
139) with the Bankruptcy Court. Pursuant to 28 U.S.C. § 158(c)(1)(A), Debtor elected
to have this court hear the appeal.
On April 19, 2018, Debtor filed a Brief (“Debtor’s Brief”) (docket no. 5). On May
18, 2018, the government filed a Brief (“Government’s Brief”) (docket no. 6). On June
2, 2018, Debtor filed a Reply Brief (“Reply”) (docket no. 7). On September 19, 2018,
the government filed a Notice of Supplemental Authority (docket no. 9). On September
24, 2018, Debtor filed a Response to Notice of Supplemental authority (docket no. 10).
The matter is fully submitted and ready for decision.
4
IV. ANALYSIS
Debtor identifies two issues on appeal. First, whether the Bankruptcy Court erred
in vacating its March 17, 2017 Order for lack of jurisdiction, because in fact, the IRS’s
decision to file a claim in Debtor’s bankruptcy proceedings established jurisdiction.
Second, whether the Bankruptcy Court erred in determining that a claim objection under
Fed. R. Bankr. P. 3007(a) required formal service under Fed. R. Bankr. P. 9014(b) and
7004.1 Because these two issues are intertwined, the court will address them together.
A. Parties’ Arguments
First, Debtor argues that “[t]he [B]ankruptcy [C]ourt’s finding of jurisdictional
defect was . . . in error.” Debtor’s Brief at 16. Debtor asserts that “[t]he [IRS] has
authority to submit claims in bankruptcy cases on behalf of the United States, and
Congress has waived immunity from suit.” Id. at 17. Debtor maintains that “[t]he IRS’s
submission of a proof of claim to the [B]ankruptcy [C]ourt on February 11, 2016 was a
valid and authorized act.” Id. at 18-19. Debtor argues that, pursuant to 11 U.S.C.
§ 106(a)(2), “[t]he United States is not a ‘required party’ for an objection to an IRS tax
claim . . . because Congress said so.” Id. at 19. Debtor concludes that, based on the
IRS’s authority to submit a proof of claim in his bankruptcy case, the IRS “was not
immune from [his] objection.” Id. at 20.
Second, Debtor argues that “[a] creditor’s submission of a proof of claim in
bankruptcy establishes jurisdiction over that claim.” Id. Debtor maintains that, “[a]t a
minimum, the act of submitting a claim in bankruptcy establishes jurisdiction over that
claim.” Id. at 22. Debtor asserts that “[n]o need existed for [him] to re-establish
1
The government frames the issue on appeal as follows: “Whether the Bankruptcy
Court correctly vacated its prior order sustaining the objection to the IRS’s claim filed by
the [Debtor] . . . on the basis that [the Debtor] failed to serve the United States with the
claim objection in violation of [Fed. R. Bankr. P.] 3007, 9014, and 7004.” Government’s
Brief at 5.
5
jurisdiction after answering the IRS’s claim with an objection” and the Bankruptcy Court’s
“finding of a void order made without jurisdiction under Rule 60(b)(4) was entered in
error.” Id. at 27.
Third, Debtor argues that the Bankruptcy Court misinterpreted the pre-amendment
version of Fed. R. Bankr. P. 3007(a).2 Id. Debtor contends that “the intent and purpose
of Bankruptcy Rule 3007(a) was for the [d]ebtor to ‘mail[] or otherwise deliver[]’ notice
and a copy of his objection to the IRS.” Id. (alteration in original). Debtor asserts that
“the 2017 amendments to [Bankruptcy] Rule 3007 only require [Bankruptcy] Rule 7004
service for an officer or agency of the United States, reinforces that ‘service of process’
is not [a] pre-requisite for claims jurisdiction . . . and that a nested notice/service
interaction between [Bankruptcy] Rules 3007, 9014(b), and 7004 was never intended.”
Id. at 28. Debtor maintains that the “better interpretation” of the pre-amendment version
of Bankruptcy Rule 3007(a) is that service of process on the IRS and the United States was
not required under Bankruptcy Rule 7004.
Id. at 31.
Debtor concludes that the
Bankruptcy Court’s “decision that a failure to complete service on the United States
rendered it without jurisdiction was made [in] error.” Id. at 31-32.
The government argues that the Bankruptcy Court “properly vacated its order
sustaining [Debtor’s] claim objection because [Debtor] failed to serve the United States.”
Government’s Brief at 8. The government maintains that the pre-amendment version of
2
Bankruptcy Rule 3007 was amended, effective December 1, 2017, requiring
service of the objection and notice to a proof of claim to be on “the person most recently
designated on the claimant’s original or amended proof of claim” unless “the objection is
to a claim of the United States, or any of its officers or agencies” then service is “in the
manner provided . . . by Rule 7004(b)(4) or (5).” Bankruptcy Rule 3007(a)(2)(i).
However, Bankruptcy Rule 3007(a), in effect at the time relevant to this appeal, simply
stated “[a]n objection to the allowance of a claim shall be in writing and filed. A copy of
the objection with notice of the hearing thereon shall be mailed or otherwise delivered to
the claimant. . . .” Bankruptcy Rule 3007(a) (2007).
6
Bankruptcy Rule 3007 required Debtor to serve his objection to the IRS’s proof of claim
on the United States by delivering copies of the objection to the United States Attorney
General and United States Attorney for the Northern District of Iowa. See id. at 9. The
government argues that the pre-amendment version of Bankruptcy Rule 3007 was governed
by Bankruptcy Rule 9014 because claim objections are contested matters, and contested
matters are governed by Rule 9014. Id. at 11. Rule 9014(b) requires service to be made
in accordance with Bankruptcy Rule 7004, which requires service upon the United States
or upon an officer or agency of the United States to be effectuated by serving the United
States Attorney General and the United States Attorney for the proper district. Id.; see
also Fed. R. Bankr. P. 7004(b)(4)-(5). The government asserts that, because Debtor failed
to serve his objection to the IRS’s proof of claim in accordance with Bankruptcy Rule
7004, the Bankruptcy Court correctly determined that Debtor did not properly serve the
United States with his claim objection. See Government’s Brief at 14. The government
also asserts that the Bankruptcy Court correctly determined that Debtor’s claim objection
was void under Fed. R. Civ. P. 60(b)(4) because “it was entered without personal
jurisdiction over a party for lack of service of process.” 3 Id.
B. Applicable Law
Fed. R. Civ. P. 60(b)(4) provides that “[o]n motion and just terms, the court may
relieve a party or its legal representative from a final judgment, order, or proceeding for
the following reasons . . . (4) the judgment is void. . . .” A judgment is void, when it is
“entered without personal jurisdiction over the defendant for lack of service of process.”
In re Gambill, 477 B.R. 753, 761 (Bankr. E.D. Ark. 2012); see also Baldwin v. Credit
Based Asset Servicing & Securitization, 516 F.3d 734, 737 (8th Cir. 2008) (“A judgment
is void if the rendering court lacked jurisdiction. . . .”); Printed Media Services, Inc. v.
3
Fed. R. Civ. P. 60(b)(4) is made applicable to bankruptcy cases through Fed. R.
Bankr. P. 9024.
7
Solna Web, Inc., 11 F.3d 838, 843 (8th Cir. 1993) (“If a defendant is improperly served,
a federal court lacks jurisdiction over the defendant.”).
“[I]n cases involving the IRS, the real party in interest is the United States of
America.” In re Laughlin, 210 B.R. 659, 660 (B.A.P. 1st Cir. 1997). “It is a well-settled
principle that the IRS cannot be sued and that the proper party in actions involving federal
taxes is the United States of America.” In re Levoy, 182 B.R. 827, 832 (B.A.P. 9th Cir.
1995) (citing Blackmar v. Guerre, 342 U.S. 512, 514 (1952)); see also United States v.
Oxylance Corp., 115 B.R. 380, 381 (N.D. Ga. 1990) (stating that it is a “well-settled
principle that the IRS cannot sue and be sued and that the proper party in actions involving
federal taxes is the United States of America”); In re Morrell, 69 B.R. 147, 149 (N.D.
Cal. 1986) (providing that the IRS “has no capacity to sue or be sued”); Raimondo v.
Hood, No. 2:17-04254-CV-C-NKL, 2018 WL 3748406, at *3 (W.D. Mo. Aug. 7, 2018)
(providing that the IRS may not be sued and the proper party is the United States).
Accordingly, “where relief against the IRS is sought through adversary proceeding or
contested matter, the United States must be properly served.” Laughlin, 210 B.R. at 660;
see also In re Schweitzer, 145 B.R. 292, 293 (E.D. Ark. 1992) (“[I]f the United
States . . . is a party in a contested matter, both the United States Attorney and the
Attorney General of the United States must be served.”).
The pre-amendment version of Bankruptcy Rule 3007 set forth the procedure for
noticing a claim objection: “An objection to the allowance of a claim shall be in writing
and filed. A copy of the objection with notice of the hearing thereon shall be mailed or
otherwise delivered to the claimant . . . at least 30 days prior to the hearing.” Fed. R.
Bankr. P. 3007(a) (2007). The advisory committee’s note to Bankruptcy Rule 3007 sheds
light upon its interpretation. It states that “[t]he contested matter initiated by an objection
to a claim is governed by [Bankruptcy R]ule 9014.” Fed. R. Bankr. P. 3007 advisory
committee’s note.
8
Bankruptcy Rule 9014(a) provides in pertinent part that: “In a contested matter not
otherwise governed by these rules, relief shall be requested by motion, and reasonable
notice and opportunity for hearing shall be afforded the party against whom relief is
sought.” Bankruptcy Rule 9014(b) provides in pertinent part that: “The motion shall be
served in the manner provided for service of a summons and complaint by [Bankruptcy]
Rule 7004.” The advisory committee’s note to Bankruptcy Rule 9014 is instructive for
determining the nature of a contested matter. The advisory committee note states that
“[w]henever there is an actual dispute, other than an adversary proceeding, before the
bankruptcy court, the litigation to resolve that dispute is a contested matter. For example,
the filing of an objection to a proof of claim . . . creates a dispute which is a contested
matter.” Fed. R. Bankr. P. 9014 advisory committee’s note.
Bankruptcy Rule 7004(b)(4) provides in pertinent part that:
service may be made within the United States . . . as follows:
...
(4) Upon the United States, by mailing a copy of the summons
and complaint addressed to the civil process clerk at the office
of the United States attorney for the district in which the action
is brought and by mailing a copy of the summons and
complaint to the Attorney General of the United States at
Washington, District of Columbia, and in any action attacking
the validity of an order of an officer or an agency of the
United States not made a party, by also mailing a copy of the
summons and complaint to that officer or agency. . . .
In interpreting the foregoing bankruptcy procedural rules, the Bankruptcy Appellate
Panel for the Ninth Circuit Court of Appeals explained that:
Fed. R. Bankr. P. 3007 does not provide the manner of
service of the objection to proof of claim. However, the rule’s
Advisory Committee Note states: “The contested matter
initiated by an objection to a claim is governed by rule
9014. . . .” Fed. R. Bankr. P. 9014, which pertains to
9
contested matters, in turn, makes applicable the service
provisions of Fed. R. Bankr. P. 7004.
Levoy, 182 B.R. at 834; see also Schweitzer, 145 B.R. at 292-93 (providing that a debtor’s
objection to a claim initiates a contested matter under Bankruptcy Rule 9014, making
Bankruptcy Rule 7004 applicable to the manner of service); Oxylance Corp., 115 B.R. at
380-81 (finding that notice of objections to claims by the IRS must be served on the local
United States Attorney and the Attorney General of the United States because Bankruptcy
Rule 3007 must be read in conjunction with Bankruptcy Rule 9014, as claim objections are
contested matters); In re Sousa, No. MB 00-095, 2001 WL 933595, at *1-*2 (B.A.P 1st
Cir. July 19, 2001) (per curiam) (same); United States v. Filipovits, No. CIV. A. MJG-953049, 1996 WL 627412, at *2 (D. Md. Aug. 27, 1996) (“Because objections are
considered ‘contested matters’ for the purposes of the Bankruptcy Code, [Bankruptcy] Rule
3007 must be read in conjunction with Bankruptcy Rule 9014 which provides that ‘[t]he
motion shall be served in the manner provided for service of a summons and complaint by
[Bankruptcy] Rule 7004.’”) (second alteration in original) (quotation omitted)).
Not all courts agree with the interpretation of Bankruptcy Rules 3007, 9014 and
7004 set forth above. For example, the Bankruptcy Court for the District of Kansas
rejected:
a rule which would require that notice of a claim objection and
the hearing on the objection be served in accord with
Bankruptcy Rule 7004, whether the claimant is a private party
or a governmental entity. A claim objection is governed by
Bankruptcy Rule 3007, which includes its own notice
provision. Bankruptcy Rule 9014 requires service of motions
initiating contested matters in the manner of Bankruptcy Rule
7004, but a claim objection is not initiated by motion. The
Court finds . . . that notice of a claim objection is sufficient if
it complies with Bankruptcy Rule 3007[.]
In re Hensley, 356 B.R. 68, 79 (Bankr. D. Kan. 2006); see also In re Anderson, 330 B.R.
180, 186 (Bankr. S.D. Tex. 2005) (holding that “mailing as required by [Bankruptcy] Rule
10
3007 constitutes sufficient and proper service, and that service under Rule 7004 is not
required”); In re Cagle, No. 07-11689-WHD, 2008 WL 7874772, at *3-*4 (Bankr. N.D.
Ga. June 2, 2008) (same).
More recently in In re Monk, No. 04-60712-fra13, 2013 WL 4051864, at *3
(Bankr. D. Or. Aug. 9, 2013), the Bankruptcy Court disagreed with the reasoning of
Hensley, Anderson, Cagle and similar cases. In Monk, the court explained that:
In essence, [Bankruptcy] Rule 9014(b) provides the manner in
which service of the objection to claim should be made, while
[Bankruptcy] Rule 3007(a) supplements that provision by
providing more specific information about who should receive
notice of the hearing and when. Rule 3007 is not a substitute
for service of the objection to [the] claim. The fact that a
claim objection is initiated by an objection rather than a motion
does not remove the matter from the service requirements of
Rule 9014(b).
2013 WL 4051864 at *3. Similarly, in In re Gordon, No. BK-S-11-22221-LBR, 2013 WL
1163773, at *2 (Bankr. D. Nev. Mar. 20, 2013), the Bankruptcy Court explained that:
Bankruptcy Rules 3007, 9014, and 7004 set forth the
procedures which must be complied with when objecting to a
proof of claim. Rules 3007 and 9014(a) concern notice, while
the other rules Rules 9014(b) and 7004 are about service.
These rules act in tandem to govern service of the claim
objection and notice of the hearing about it.
Id. The Gordon court further stated that “[Bankruptcy] Rule 3007 is not a substitute for
service of the objection to claim that is required by [Bankruptcy] Rules 9014(b) and 7004.
The fact that a claim objection is initiated by filing an objection, rather than a motion, does
not render void the service requirement of Rule 9014(b).” Id. at *3.
Interpreting Bankruptcy Rules 3007, 9014 and 7004 in accordance with Levoy,
Schweitzer, Oxylance Corp., Filipovits, Monk and Gordon, means that, “when a party
seeks relief against the IRS through an adversary or contested matter, the United States is
the real party in interest and must be properly served.” Sousa, 2001 WL 933595 at *2.
11
“If proper service is not effectuated, personal jurisdiction over the United States is lacking,
and any judgment entered prior to proper service is void” and “relief under Fed. R. Civ.
P. 60(b)(4) is mandatory.” Id.
C. Application
First, Debtor argues that, pursuant 11 U.S.C. § 106(a)(2), “[t]he United States is
not a ‘required party’ for an objection to an IRS tax claim.” Debtor’s Brief at 19. The
court is unpersuaded by Debtor’s argument. § 106 concerns “Congressional intent to
abrogate sovereign immunity for certain bankruptcy proceedings.”
In re Paloma
Generating Co., 588 B.R. 695, 724 (Bankr. D. Del. 2018). Specifically, § 106(a) states
that “[n]otwithstanding an assertion of sovereign immunity, sovereign immunity is
abrogated as to a governmental unit[.] . . .” 11 U.S.C. § 101(27) defines “governmental
unit” to include a “department, agency, or instrumentality of the United States.” Here,
the government has not raised sovereign immunity as a defense to Debtor’s claim
objection. Moreover, “an entity that qualifies as a governmental unit under § 101[(27)]
cannot be sued in bankruptcy court unless that governmental unit has independent statutory
authority to sue and be sued.” In re Town & Country Home Nursing Services, Inc., 112
B.R. 329, 335 (B.A.P 9th Cir. 1990). The IRS does not have independent statutory
authority to sue and be sued. “It is a well-settled principle that the IRS cannot be sued and
that the proper party in actions involving federal taxes is the United States of America.”
Levoy, 182 B.R. at 832; see also Oxylance Corp., 115 B.R. at 381 (stating that it is a
“well-settled principle that the IRS cannot sue and be sued and that the proper party in
actions involving federal taxes is the United States of America”). Accordingly, the court
finds that the Unites States is a required party for an objection to an IRS claim.
Second, Debtor argues that “[a] creditor’s submission of a proof of claim in
bankruptcy establishes jurisdiction over that claim.” Debtor’s Brief at 20. Relying on
United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), Debtor asserts that the
12
IRS “filed a proof of claim regarding Debtor’s tax debt, thereby submitting itself to the
[B]ankruptcy [C]ourt’s jurisdiction with respect to that claim” and the IRS “had actual
prior notice of the . . . claim objection.” Debtor’s Brief at 26. Debtor’s reliance on
Espinosa is misplaced. “Espinosa stands for the ‘limited proposition that a confirmed plan
is binding on all parties-in-interest, provided the plan proponent afforded such parties
adequate notice, consistent with the Due Process Clause of the United States
Constitution even if the plan violates the Bankruptcy Code in some particulars.’” In re
Monahan, 497 B.R. 642, 651 (B.A.P. 1st Cir. 2013) (quoting In re Deavila, 431 B.R.
178, 179 (Bankr. W.D. Mich. 2010)). Here, unlike in Espinosa, the government sought
vacation of the Bankruptcy Court’s March 17, 2017 Order sustaining Debtor’s objection
to the IRS’s proof of claim on the basis of a jurisdictional defect, Debtor’s failure to
properly serve the United States. See Zokaites Properties, LP v. La Mesa Racing, LLC,
No. 11-259, 2012 WL 6015818, at *3 (W.D. Pa. Dec. 3, 2012) (distinguishing Espinosa
because the defendant sought relief from judgment based on a jurisdictional error, failure
to effect proper service).
“If a defendant is improperly served, a federal court lacks jurisdiction over the
defendant.” Bell v. Pulmosan Safety Equipment Corp., 906 F.3d 711, 714-15 (8th Cir.
2018) (quoting Printed Media Services, Inc. v. Solna Web, Inc., 11 F.3d 838, 843 (8th
Cir. 1993)); see also Omni Capital Int’l, Ltd. v. Rudolf Wolff & Co., LTD , 484 U.S. 97
(1987) (“Before a federal court may exercise personal jurisdiction over a defendant, the
procedural requirement of service of [process] must be satisfied.”). As discussed above,
it is a “well-settled principle that the IRS cannot sue and be sued and that the proper party
in actions involving federal taxes is the United States of America.” Oxylance Corp., 115
B.R. at 381. Because “claim objections are contested matters,” and the IRS cannot sue
or be sued, the United States is a required party in this matter. Levoy, 182 B.R. at 834
(citing 8 Collier on Bankruptcy, § 3007.03[1] at 3007-3 (15th ed. 1994)). “[W]hen a party
13
seeks relief against the IRS through an adversary or contested matter, the United States is
the real party in interest and must be properly served. . . . ‘[N]otice to the IRS through
its local Special Procedures Staff does not cure the jurisdictional defect.’” Sousa, 2001
WL 933595, at *2 (quoting Laughlin, 210 B.R. at 661). Even though it is generally
“beyond dispute that the bankruptcy court has personal jurisdiction over any creditor
whose proof of claim has been objected to because the creditor consents to the bankruptcy
court’s personal jurisdiction by filing a proof claim,” that is not the case here because the
United States is a required party in a contested matter. In re 701 Mariposa Project, LLC,
514 B.R. 10, 16-17 (B.A.P. 9th Cir. 2014). Accordingly, the court finds that the IRS’s
submission of a proof claim in this case did not establish jurisdiction because the United
States is the real party in interest in a contested matter involving the IRS.
Third, Debtor argues that the proper interpretation of the pre-amendment version
of Bankruptcy Rule 3007(a) is that service of process on the United States was not required
under Bankruptcy Rule 7004. See Debtor’s Brief at 31. The court acknowledges that
there is a lack of consensus in the case law regarding whether, under the pre-amendment
version of Rule 3007, service of a claim objection required compliance with Bankruptcy
Rule 7004 or whether compliance with Rule 3007 alone was sufficient. The court also
acknowledges that there is no controlling case law in the Eighth Circuit addressing this
issue. However, having reviewed the case law, the court finds that Debtor’s interpretation
of the pertinent procedural bankruptcy rules is unpersuasive. Further, the court finds that
the greater weight of authority supports the interpretation that the pre-amendment version
of Rule 3007 required a debtor to make service in accordance with Bankruptcy Rules 9014
and 7004.
The pre-amendment version of Bankruptcy Rule 3007 set forth the procedure for
noticing a claim objection. See Fed. R. Bankr. 3007(a) (2007) (providing in pertinent part
that “[a] copy of the objection with notice of the hearing thereon shall be mailed or
14
otherwise delivered to the claimant . . . at least 30 days prior to the hearing”). The
advisory committee’s note to Rule 3007 states that “[t]he contested matter initiated by an
objection to a claim is governed by [Bankruptcy R]ule 9014.” Fed. R. Bankr. P. 3007
advisory committee’s note. Bankruptcy Rule 9014(b) provides in pertinent part that “[t]he
motion shall be served in the manner provided for service of a summons and complaint by
[Bankruptcy] Rule 7004.” The advisory committee’s note to Bankruptcy Rule 9014 states
that “[w]henever there is an actual dispute, other than an adversary proceeding, before the
bankruptcy court, the litigation to resolve that dispute is a contested matter. For example,
the filing of an objection to a proof of claim . . . creates a dispute which is a contested
matter.” Fed. R. Bankr. P. 9014 advisory committee’s note. In the present case,
Bankruptcy Rule 7004(b)(4) requires that “service may be made within the United States”
by mailing a copy of the objection to “the civil process clerk at the office of the United
States attorney for the district in which the action is brought and by mailing a copy . . .
to the Attorney General of the United States at Washington, District of Columbia.”
In Levoy, the Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals
explained that:
Fed. R. Bankr. P. 3007 does not provide the manner for
service of the objection to a proof of claim. However, the
rule’s Advisory Committee Note states: “The contested matter
initiated by an objection to a claim is governed by rule
9014. . . .” Fed. R. Bankr. P. 9014, which pertains to
contested matters, in turn, makes applicable the service
provisions of Fed. R. Bankr. P. 7004.
182 B.R. at 834. Similarly, in Morrell, the district court stated that “proper service of the
objections to the IRS claims required service . . . upon the United States Attorney for the
[district where the action was brought] and the Attorney General of the United States at
Washington, D.C.” 69 B.R. at 149; see also Laughlin, 210 B.R. at 660 (stating that
“where relief against the IRS is sought through . . . [a] contested matter, the United States
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must be properly served”); Schweitzer, 145 B.R. at 292-93 (stating that “if the United
States . . . is a party in a contested matter, both the United States Attorney and the
Attorney General of the United States must be served”); Gordon, 2013 WL 1163773, at
*2 (“Bankruptcy Rules 3007, 9014, and 7004 set forth the procedures which must be
complied with when objecting to a proof of claim. Rules 3007 and 9014(a) concern notice,
while the other rules Rules 9014(b) and 7004 are about service. These rules act in
tandem to govern service of the claim objection and notice of the hearing about it”);
Filipovits, 1996 WL 627412, at *2 (“Because objections are considered ‘contested matters’
for the purposes of the Bankruptcy Code, [Bankruptcy] Rule 3007 must be read in
conjunction with Bankruptcy Rule 9014 which provides that ‘[t]he motion shall be served
in the manner provided for service of a summons and complaint by [Bankruptcy] Rule
7004.’”) (second alteration in original) (quotation omitted)).
Further, in Monk, the court addressed the difference between notice and service:
In essence, [Bankruptcy] Rule 9014(b) provides the manner in
which service of the objection to claim should be made, while
[Bankruptcy] Rule 3007(a) supplements that provision by
providing more specific information about who should receive
notice of the hearing and when. Rule 3007 is not a substitute
for service of the objection to [the] claim. The fact that a
claim objection is initiated by an objection rather than a motion
does not remove the matter from the service requirements of
Rule 9014(b).
2013 WL 4051864 at *3; see also Gordon, 2013 WL 1163773, at *3 (“Rules 3007, 9014,
and 7004 the interrelated mechanisms for notice and service under the Bankruptcy
Rules are a coherent scheme of the procedural due process safeguards which must be
afforded for claims objections; one rule does not replace, or ‘defer’ to the other. . . . Rule
3007 is not a substitute for service of the objection to claim that is required by Rules
9014(b) and 7004.”).
The foregoing interpretation of Rules 3007, 9014 and 7004 means that:
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[W]hen a party seeks relief against the IRS through . . . [a]
contested matter, the United States is the real party in interest
and must be properly served. . . . [N]otice to the IRS . . . does
not cure the jurisdictional defect. If proper service is not
effectuated, personal jurisdiction over the United States is
lacking, and any judgment entered prior to proper service is
void. Furthermore, if the judgment or order complained of is
void, relief under Fed. R. Civ. P. 60(b)(4) is mandatory.
Sousa, 2001 WL 933595, at *2 (quotations and citations omitted).
Here, Debtor did not properly serve on the United States his objections to the IRS’s
proof of claim. The notice provided by Debtor to the IRS was not sufficient, as the United
States was the real party in interest. Because Debtor did not properly serve the United
States, the Bankruptcy Court lacked jurisdiction over the United States when it filed its
March 17, 2017 Order sustaining Debtor’s objection. Thus, the March 17, 2017 Order
was void. The Bankruptcy Court did not err in vacating the March 17, 2017 Order
pursuant to Fed. R. Civ. P. 60(b)(4). Accordingly, the court shall affirm the Bankruptcy
Court’s February 8, 2018 Ruling granting the government’s motion to vacate the March
17, 2017 Order.
V. CONCLUSION
The Bankruptcy Court’s February 8, 2018 Ruling granting the United States’s
Motion to Vacate the Order Sustaining Debtor’s Objection to IRS Proof of Claim No. 2
is AFFIRMED.
IT IS SO ORDERED.
DATED this 3rd day of January, 2019.
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