MURPHY v. INTERNAL REVENUE SERVICE

Filing 4

ORDER ON MOTION FOR LEAVE TO APPEAL INTERLOCUTORY ORDER OF THE BANKRUPTCY COURT - denying 1 Motion for Leave to Appeal. By JUDGE D. BROCK HORNBY. (mnw)

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
WILLIAM CHARLES MURPHY,
PLAINTIFF
v.
INTERNAL REVENUE SERVICE,
DEFENDANT

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MISC. NO. 2:14-MC-24-DBH

ORDER ON MOTION FOR LEAVE TO APPEAL INTERLOCUTORY
ORDER OF THE BANKRUPTCY COURT
This is a motion by the Internal Revenue Service for leave to appeal an
interlocutory order of the bankruptcy court on a petition under 26 U.S.C.
§ 7433(e). The motion is DENIED.
On cross-motions for partial summary judgment, the bankruptcy court
granted partial summary judgment against the Internal Revenue Service,
concluding that, on the summary judgment record, the Internal Revenue
Service had committed a willful violation of the bankruptcy court’s discharge
injunction contrary to 26 U.S.C. § 7433(e).

That statute provides: “If, in

connection with any collection of Federal tax with respect to a taxpayer, any
officer or employee of the Internal Revenue Service willfully violates any
provision of section . . . 524 (relating to effect of discharge) of Title 11, United
States Code . . ., such taxpayer may petition the bankruptcy court to recover
damages against the United States.” 26 U.S.C. § 7433(e)(1).
In the ordinary course, the case would next proceed to damages
discovery and then to damages trial. The Internal Revenue Service, however,

has requested leave of this court to take an interlocutory appeal on the 7433(e)
liability ruling, before there are any further proceedings in the bankruptcy
court.
The governing statue is 28 U.S.C. § 158(a)(3), which allows such appeals
of bankruptcy court interlocutory orders and decrees only “with leave of court.”
Case law in this District follows the standards for interlocutory appeals under
§ 1292(b), but with recognition that there is a greater measure of flexibility
under § 158(a)(3).

BancBoston Real Estate Capital Corp. v. JBI Assoc. Ltd.

P’ship, 227 B.R. 569, 581 (D. Me. 1998); accord In re Williams, 215 B.R. 289,
298 n.6 (D.R.I. 1997); In re Bank of New England Corp., 218 B.R. 643, 652 (1st
Cir. B.A.P. 1998). According to Judge Carter:
Courts have stated that interlocutory certification
under section 1292(b), and thus leave to appeal under
section 158(a)(3), should be used “sparingly and only in
exceptional circumstances.” However, courts have also
reasoned that discretion under section 158(a)(3) is greater
than that afforded under section 1292(b), and that the
bankruptcy context requires a more flexible view of finality.
Hence, courts have advocated for a more pragmatic and
liberal approach in determining the appealability of
bankruptcy court orders.

BancBoston, 227 B.R. at 581-82 (citations omitted).
Under § 1292(b), interlocutory appeal is permitted only if the appealed
order concerns a controlling question of law for which there is a substantial
ground for a difference of opinion the immediate resolution of which may
materially advance the ultimate resolution of the litigation.

Id. at 581; U.S.

Fidelity & Guar. Co. v. Arch Ins. Co., 578 F.3d 45, 53 n.10 (1st Cir. 2009).

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Applying those standards as modified by BancBoston’s more pragmatic
and liberal approach, I conclude that interlocutory appeal in this case will not
materially advance the ultimate resolution of the litigation (at least no more
than interlocutory appeals of liability rulings might do in cases generally). If I
were to allow the appeal and if the Internal Revenue Service were then to
persuade me on the merits that the bankruptcy court erred in awarding
summary judgment against it on liability, the remedy would be a further delay
in a remand to the bankruptcy court for a trial on the merits of liability1—all
that without addressing damages, the next step in the bankruptcy court
without the interlocutory appeal.
Of course the Internal Revenue Service is vehement (like most
defendants) that it should not be subject to liability.2 But it can still pursue
that argument on appeal from a final judgment after a damages determination
is made. Its argument that “the damages phase of this litigation may consume
considerable resources, whereas reversal of the liability determination would
end the matter,” Motion for Leave to Appeal Interlocutory Decision and Order at
1 (ECF No. 1), is one that many defendants can make, but it does not justify

1 The Internal Revenue Service argues that this court should also reverse the bankruptcy
court’s denial of its motion for summary judgment on liability. Denials of summary judgment
are almost never appealable, except in cases of qualified immunity. Cruz-Gomez v. RiveraHernandez, 444 F.3d 29, 33 (1st Cir. 2006) (“Orders of the district court denying pretrial
motions for summary judgment typically are not appealable at the time they are entered.”).
2 Notwithstanding that in an earlier summary judgment proceeding, the bankruptcy court
ruled that the debtor’s tax obligations had been discharged for earlier years and that the
Internal Revenue Service had improperly reversed the debtor’s payments for later tax years and
applied them to these earlier years. The Internal Revenue Service did not appeal that ruling or
seek relief from it. Op. on Summ. J. at 5 (Me. Bankr. Case # 11-2020) (Dec. 20, 2013) (ECF
No. 94-1).

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interlocutory appeal. Piecemeal litigation is disfavored for sound reasons. I see
no reason to depart from that principle here.
Finally, the medical condition of the Assistant United States Attorney, its
impact on what the Internal Revenue Service did or failed to do in the
bankruptcy court, and/or the effect of the bankruptcy judge’s retirement
(assertedly he might have had to recuse because of information given to him
earlier about the medical condition), Motion for Leave to Appeal Interlocutory
Decision and Order at 19 and Amended Reply to Plaintiff’s Opposition to
Motion for Leave to Appeal Interlocutory Decision and Order at 3 n.2 (ECF No.
3), do not alter my conclusion.
It will be best that this case proceed in the ordinary course without the
interruption of an interlocutory appeal.

The merits of the Internal Revenue

Service’s position on liability will not be prejudiced by reserving them for
appeal after final judgment.
SO ORDERED.
DATED THIS 4TH DAY OF MARCH, 2014
/S/D. BROCK HORNBY
D. BROCK HORNBY
UNITED STATES DISTRICT JUDGE

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