UNITED STATES OF AMERICA v. JERRY B. CLAYTON, et al

Filing 58

MEMORANDUM OPINION and ORDER re: 43 MOTION for Judgment on the Pleadings. IT IS ORDERED that the Government has ten (10) calendar days within which to file an amendment to its complaint to set forth its claim under 11 U.S.C. § 523(a)(1)(C). If the Government does so, Claytons Motion for Judgment on the Pleadings pursuant to Federal Rule of Civil Procedure 12(c) (Doc. 43 ) will be deemed DENIED, and Clayton will have ten (10) calendar days from the filing of any amended complaint within which to file an answer; if the Government fails to timely file an amended complaint, the court will grant Claytons motion for judgment on the pleadings as to claims for tax years 2002 through 2006. Signed by JUDGE THOMAS D. SCHROEDER on 12/13/2011.(Solomon, Dianne)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
UNITED STATES OF AMERICA,
Plaintiff,
v.
JERRY B. CLAYTON, DEBORAH P.
CLAYTON, ALLENE S. CLAYTON,
EDWIN L. CLAYTON, MARIA D.
CLAYTON, KEN A. CLAYTON, and
GAIL A. CLAYTON,
Defendants.

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1:10CV198

MEMORANDUM OPINION AND ORDER
THOMAS D. SCHROEDER, District Judge.
This is a tax case in which the United States of America
(or “Government”) seeks recovery of alleged unpaid taxes and
penalties.

Before the court is the motion of Defendant Jerry B.

Clayton (“Clayton”) for judgment on the pleadings pursuant to
Federal Rule of Civil Procedure 12(c).

(Doc. 43.)

Clayton

contends that a general discharge from his previous bankruptcy
proceedings

protects

him

from

the

mere nonpayment as a matter of law.

complaint‟s

allegations

of

For the reasons set forth

below, Clayton‟s motion will be denied conditionally upon the
Government‟s filing of an amended complaint; otherwise, in the
absence of an amended complaint, the motion will be granted to
the extent indicated.

I.

BACKGROUND
The factual allegations of the complaint, which are taken

as

true

for

present

purposes,

along

with

any

admissions

contained in Clayton‟s answer as well as matters in the public
record of which the court can take judicial notice, reveal the
following factual history:
According to the Government, Clayton and his wife, Deborah,
filed joint income tax returns for the years 2002 through 2007
that reported a total tax liability of over $1.8 million, yet
they paid just a small fraction of that sum to the Government.
(Doc. 1.)

The Internal Revenue Service (“IRS”) levied a hefty

tax bill against them for unpaid income taxes, and by February
16, 2009, had assessed their tax liability, including interest
and penalties for late payment, at $1,964,889.1

(Id. ¶ 19.)

On March 11, 2010, the Government filed the present twocount complaint against Clayton and other members of his family
to reduce Clayton‟s tax liability to a judgment (Count I) and to
foreclose on property owned jointly by Clayton, his brothers,
and their spouses to satisfy a tax lien undergirded by the tax
liability in Count I (mislabeled as “Count III”).
Government‟s

complaint

contains

no

allegation

(Id.)
of

fraud

The
or

willful tax evasion and merely sets out facts indicating that

1

Clayton and his wife have separated, and the Government obtained a
default judgment against Deborah on September 1, 2010. (Doc. 22.)

2

Clayton “failed to pay the United States the full amount owed.”
(Doc. 1 ¶ 18.)

Before filing an answer, and faced with these

and other debts (that Clayton argues were related to his wife‟s
health and their children‟s education expenses), Clayton filed
for Chapter 7 bankruptcy protection on May 22, 2010.

(Doc. 44

at 2; Doc. 13.)
Clayton‟s
action.

bankruptcy

filing

See 11 U.S.C. § 362.

automatically

nor

bankruptcy

the
court

Government
whether

sought

a

not

his

or

this

In the bankruptcy proceedings,

Clayton listed the United States as a creditor,
Clayton

stayed

but neither

determination
tax

from

liabilities

the
were

nondischargeable in bankruptcy based on any statutory exception.
On September 2, 2010, the bankruptcy court entered a general
discharge of Clayton‟s debts.

Discharge of Debtor at 1, In re

Clayton, No. 10-80899 (Bankr. M.D.N.C. Sept. 2, 2010), Doc. 31.
As Clayton‟s bankruptcy drew to a close, the United States
moved to reopen this action (Doc. 19), which the court did on
September 27, 2010 (Doc. 28).
answered

the

Government‟s

On October 15, 2010, Clayton

complaint.

(Doc.

30.)

Clayton‟s

answer raised several defenses, including claims that “[s]ome or
all of [his] debt(s)” had been discharged in bankruptcy, that
“[s]ome or all of the income tax liability” had been paid, and
that the Government‟s claims for equitable relief were barred by
the doctrines of waiver, estoppel, and unclean hands.

3

(Id.)

Thereafter, Clayton resisted the Government‟s discovery requests
relating

to

his

possible

willful

failure

to

pay

his

tax

liability on the grounds that the Government‟s complaint alleged
mere nonpayment rather than willfully evasive behavior on his
part.

(Doc.

39

at

5-6.)

On

June

10,

2011,

however,

the

Magistrate Judge overruled Clayton‟s objections, finding good
cause to compel discovery responses from him.

(Doc. 42.)

On July 29, 2011, Clayton filed the present

motion for

judgment on the pleadings (Doc. 43), arguing that because the
Government

neither

liabilities

in

contested

the

the

bankruptcy

dischargeability

proceeding

nor

of

his

asserted

tax

their

nondischargeability in its complaint in this proceeding, he is
entitled

to

Government

a

judgment

contends

on

that

the

it

pleadings

had

no

(Doc.

obligation

44).
to

The

contest

dischargeability either during the bankruptcy proceedings or in
its complaint in this action, and it urges the court to deny
Clayton‟s motion.
II.

(Doc. 47.)

ANALYSIS
Courts apply the same standard for motions for judgment on

the pleadings under Rule 12(c) as for motions to dismiss made
under

Rule

12(b)(6).

Independence

News,

Inc.

v.

City

of

Charlotte, 568 F.3d 148, 154 (4th Cir.), cert. denied, 130 S.
Ct. 507 (2009).
the

complaint

to

The court assumes the factual allegations in
be

true

and

4

draws

all

reasonable

factual

inferences

in

plaintiff‟s

the

favor

as

the

nonmoving

party.

Burbach Broad. Co. of Del. v. Elkins Radio Corp., 278 F.3d 401,
406 (4th Cir. 2002).

To survive a motion to dismiss under Rule

12(b)(6), a complaint must allege “„enough facts to state a
claim to relief that is plausible on its face.‟”

Giarratano v.

Johnson, 521 F.3d 298, 302 (4th Cir. 2008) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

“A claim has

facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”

Ashcroft v.

Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009).

Unlike on a

Rule 12(b)(6) motion, however, on a Rule 12(c) motion the court
may consider the answer as well.

Rinaldi v. CCX, Inc., No.

3:05-CV-108, 2008 WL 2622971, at *2 n.3 (W.D.N.C. July 2, 2008).
The factual allegations of the answer “are taken as true only
where and to the extent they have not been denied or do not
conflict with the complaint.”

Jadoff v. Gleason, 140 F.R.D.

330, 331 (M.D.N.C. 1991).
“The

test

applicable

for

judgment

on

the

pleadings

is

whether or not, when viewed in the light most favorable to the
party

against

whom

the

motion

is

made,

genuine

issues

of

material fact remain or whether the case can be decided as a
matter

of

law.”

Smith

v.

McDonald,

562

F.

Supp.

829,

842

(M.D.N.C. 1983), aff‟d, 737 F.2d 427 (4th Cir. 1984), aff‟d, 472

5

U.S. 479 (1985); see also 5C Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 1368, at 223, 248 (3d
ed. 2004).
Clayton contends that he is entitled to judgment on the
pleadings because the United States failed to raise its claim as
an exception to discharge during his bankruptcy proceeding and
has not alleged grounds in the complaint to avoid the general
discharge, now that it is entered.
several

interrelated

arguments.

In support, Clayton raises
First,

he

argues

that

the

Government‟s failure to contest the dischargeability of his tax
debts in the bankruptcy proceedings prevents it from raising
that theory now because of the Bankruptcy Code‟s design to give
debtors a “fresh start.”

(Doc. 44 at 10-11.)

Second, Clayton

contends that because the Government failed to plead fraud or
willful tax evasion in its complaint, it should not be permitted
to continue developing discovery related to that claim.
44

at

11-12.)

Third,

he

contends

that

the

(Doc.

Government‟s

complaint fails to plead fraud with particularity as required by
Federal Rule of Civil Procedure 9(b), and thus the Government‟s
present

assertion

that

he

evaded

willfully is fatally defective.

his

taxes

fraudulently

(Doc. 44 at 8-9.)

or

And fourth,

he argues that the Government‟s failure to amend its pleadings,
post-discharge,

to

allege

an

exception

6

to

his

discharge

on

grounds of fraud or willfulness entitles him to judgment.

(Doc.

44 at 6-8, 9-11.)
The Government opposes Clayton‟s motion.

Preliminarily, it

declares his Rule 9(b) fraud argument to be moot because it is
not

proceeding

addition,

it

affirmative

on

a

claim

contends

duty

on

of fraud.

that
it

to

the

(Doc.

Bankruptcy

contest

47

5.)

In

imposes

no

dischargeability

the

Code

at

of

Clayton‟s tax debts during the bankruptcy proceedings.

Rather,

the Government argues, it may pursue claims under § 523(a)(1)(C)
individuals

against

who

willfully

evaded

paying

their

taxes

prior to entering bankruptcy even though they have received a
general discharge of debts.

And it may do so, the Government

argues, without having to specifically plead a willful evasion
claim.

As

such,

the

entitled

to

judgment

Government
on

the

concludes,

pleadings

and

Clayton
the

case

is

not

should

proceed to trial.
A brief overview of the United States Bankruptcy Code will
put the parties‟ arguments in context.
files

for

Chapter

7

bankruptcy

Generally, when a person
protection,

the

process

culminates in a discharge order, which eliminates certain of the
debtor‟s debts that existed at the time of filing.
U.S.C. § 727.

See 11

Once a discharge has been issued, it “operates as

an injunction against the commencement or continuation of an
action . . . to collect, recover or offset any such debt as a

7

personal liability of the debtor.”

11 U.S.C. § 524(a)(2).

Some

debts that existed at the time of the bankruptcy filing are
unaffected
include

by

those

§ 524(a)(2)‟s
set

forth

in

injunction,
11

U.S.C.

however,
§ 523(a).

and

they

One

such

exception is for unpaid taxes “with respect to which the debtor
made a fraudulent return or willfully attempted in any manner to
evade or defeat such tax.”

§ 523(a)(1)(C).2

this

has

case

the

preponderance

Government,
of

the

evidence

the
that

burden
an

§ 523(a) renders a debt nondischargeable.

The creditor, in
of

proving

exception

by

listed

a
in

See Grogan v. Garner,

498 U.S. 279, 287-88 (1991); Kubota Tractor Corp. v. Strack (In
re Strack), 524 F.3d 493, 497 (4th Cir. 2008).
With this understanding, the court can easily resolve three
of Clayton‟s arguments.
First, to the extent Clayton argues that the United States
had

an

obligation

to

contest

nondischargeability

under

§ 523(a)(1)(C) in his bankruptcy proceeding, he is mistaken.
is true that
2

“a

It

chapter 7 discharge eliminates the debtor‟s

Section 523(a)(1)(C) states:
(a) A discharge under section 727 . . . of this title does
not discharge an individual debtor from any debt –
(1) for a tax or custom duty –
* * *
(C) with respect to which the debtor made a
fraudulent return or willfully attempted in any
manner to evade or defeat such tax.

11 U.S.C. § 523(a)(1)(C).

8

liability on most kinds of debts.”

Sayal v. Faruque (In re

Faruque), No. 07-13375-SSM, 2009 WL 2211210, at *4 (Bankr. E.D.
Va. July 20, 2009).

Debts falling within § 523(a)(1) are not

among them, however.

Id.

lie

exclusively

within

Moreover, § 523(a)(1) claims do not
the

jurisdiction

of

the

bankruptcy

courts, Resolution Trust Corp. v. McKendry (In re McKendry), 40
F.3d 331, 335 & n.3 (10th Cir. 1994), and thus the Government
may elect to litigate them in the bankruptcy court or wait to do
so

in

another

court

having

jurisdiction

over

the

creditor‟s

claim, Ung v. Boni (In re Boni), 240 B.R. 381, 386 (B.A.P. 9th
Cir. 1999); In re Jackson, No. 05-49574-JBR, 2006 WL 1581444, at
*2 (Bankr. D. Mass. June 6, 2006).

Consequently, unless the

debtor or Government elects to litigate the nondischargeability
of a

debt under

§ 523(a)(1)(C) in the bankruptcy court,

the

claim survives the bankruptcy, is unaffected by the discharge,
and may be brought later in another court.
In

re

Thompson,

207

B.R.

7,

10

(Bankr.

11 U.S.C. § 727(b);
M.D.

Fla.

1996);

Galbreath v. Ill. Dep‟t of Revenue (In re Galbreath), 83 B.R.
549, 551 (Bankr. S.D. Ill. 1988) (noting that “the debtor may
seek a determination that a particular debt is dischargeable to
avoid

the

possibility

of

an

enforcement

action

in

[a

bankruptcy] court following the bankruptcy proceeding”).

nonAs a

tactical matter, the Government “may wait until the bankruptcy
discharge is invoked as a defense to its collection efforts, and

9

then prove a factual basis for the tax fraud exception [under
§ 523(a)(1)(C)]

in

the

collection

proceedings.”

Console

v.

Comm‟r, 291 F. App‟x 234, 237 (11th Cir. 2008) (per curiam)
(unpublished).

It is evident, therefore, that the Government‟s

decision not to contest dischargeability of Clayton‟s taxes in
his bankruptcy proceeding does not foreclose its present claim
that the tax debts are nondischargeable under § 523(a)(1)(C).3
Second, Clayton‟s argument that the court should prohibit
the United States from proceeding with discovery related to its
§ 523(a)(1)(C) claim is baseless.
argument

to

the

Magistrate

Clayton made this precise

Judge

during

prior

discovery

proceedings in this case (Doc. 39 at 7-10), but he lost and
chose not to timely object to the Magistrate Judge‟s ruling.
See 28 U.S.C. § 636(b)(1)(A); Fed. R. Civ. P. 72(a).

Although a

district

all

court

retains

the

authority

to

review

of

a

magistrate judge‟s determinations, see Schur v. L.A. Weight Loss
Ctrs., Inc., 577 F.3d 752, 760-61 (7th Cir. 2009), the Supreme
Court and the Fourth Circuit have recognized that “„Congress
would

not

have

wanted

district

3

judges

to

devote

time

to

Clayton‟s contention that this results in unfairness to him rings
hollow. Under the Bankruptcy Code, Clayton, too, could have filed an
adversary proceeding to force resolution of the dischargeability of
his tax debts.
Beyond that, any claim of unfairness should be
directed to his elected Congressional representatives who passed the
legislation. See Lang v. Comm‟r, 289 U.S. 109, 113 (1933) (explaining
that so long as legislation is permitted by the Constitution,
arguments about the fairness of a statute‟s burdens must be directed
at Congress rather than the courts).

10

reviewing magistrate‟s reports except to the extent that such
review is requested by the parties or otherwise necessitated by
Article III of the Constitution,‟” Wells v. Shriners Hosp., 109
F.3d 198, 200 (4th Cir. 1997) (quoting Thomas v. Arn, 474 U.S.
140, 153 (1985)).

Clayton has therefore waived this argument,

and the court declines to revisit his discovery objections here.
Third, Clayton‟s contention that the Government must allege
fraud

with

While

it

is

particularity
true,

as

under

Clayton

§ 523(a)(1)(C)
contends,

that

is

inapposite.

allegations

of

fraudulent tax evasion must be pleaded with specificity, see
Roper v. Barclay (In re Roper), 266 B.R. 418, 421 (Bankr. E.D.
Ark. 2001),4 proof of fraud is not required when the United

4

The In re Roper opinion, relied upon by Clayton, used broad language
in reaching its holding that claims under § 523(a)(1)(C) must be
pleaded with particularity.
266 B.R. at 420-21 (“[A]s the party
raising an issue which is essentially one of fraud, and objecting to
dischargeability on that basis, the state‟s [sic] is required to plead
the basis for its assertion that the debtor willfully evaded the tax
obligation with specificity.”). In re Roper, however, did not address
the
distinction
between
the
two
bases
of
liability
under
§ 523(a)(1)(C), one of which is “aimed at a debtor who has „made a
fraudulent return‟” and the other of which is “aimed at one who has
„willfully attempted in any manner to evade or defeat‟ his income
taxes.” See United States v. Fretz (In re Fretz), 244 F.3d 1323, 1327
(11th Cir. 2001); see also In re Birkenstock, 87 F.3d 947, 951 (7th
Cir. 1996) (noting the distinction).
To show that an individual has
willfully evaded his taxes, the “United States must simply meet the
test for „civil willfulness,‟ which is a lesser standard than that of
fraud.”
United States v. Jacobs (In re Jacobs), No. 305CV252J99HES,
2006 WL 2691516, at *15 (M.D. Fla. Sept. 19, 2006), aff‟d, 490 F.3d
913 (11th Cir. 2007).
In fact, “[a] debtor‟s attempts to evade or
defeat his tax obligations is considered „willful‟ for purposes of
§ 523(a)(1)(C) if it is done „voluntarily, consciously or knowingly,
and intentionally.‟”
Id. at *14 (quoting In re Fretz, 244 F.3d at
1330). And under Rule 9(b), “[m]alice, intent, knowledge, and other

11

States pursues the theory that a debtor willfully evaded tax
payments, see United States v. Fretz (In re Fretz), 244 F.3d
1323, 1330 (11th Cir. 2001).

Rule 9(b)‟s heightened pleading

requirements simply do not apply, therefore, to § 523(a)(1)(C)
exception claims where the Government does not charge fraud.
Here,

the

Government

has

expressly

stated

that

it

does

not

contend that Clayton filed fraudulent tax returns and, instead,
charges

that he attempted to willfully evade

taxes.

(Doc. 47 at 5.)

payment of

his

Accordingly, the Government has no

obligation to plead a claim under the willful evasion prong of
§ 523(a)(1)(C) with the particularity required by Rule 9(b).
This leaves for resolution Clayton‟s final argument – that
he is entitled to judgment because the Government‟s complaint
fails

to

allege

bankruptcy
answer.

any

discharge,

ground
which

for
he

recovery
raised

as

that
a

survives

defense

in

his
his

Now that the discharge (of which he invites the court

to take judicial notice)

has been entered by the bankruptcy

court, Clayton argues, the Government‟s complaint alleging mere
nonpayment is fatally defective under Twombly because it fails
to plead any facts to support an exception to discharge.

This

is so, he contends, despite the Government‟s explanation in its
Federal Rule of Civil Procedure 26(f) report that it intends to

conditions of a person‟s mind may be alleged generally.” Fed. R. Civ.
P. 9(b); Swierkiewicz v. Sorema N.A., 534 U.S. 506, 513 n.3 (2002).

12

proceed on a theory of willful evasion under § 523(a)(1)(C).
(Doc. 44 at 6-8.)
The Government relegates its response to this argument to a
terse,

one-sentence

footnote

United

States

assert

may

in

which

that

it

section

contends

that

523(a)(1)(C)

“the

applies

without amending its complaint and may seek to prove a factual
basis

for

its

assertion

discharge as a defense.”
F. App‟x at 237).)

when

Clayton

raised

his

bankruptcy

(Doc. 47 at 5 n.2 (citing Console, 491

Otherwise, the Government seems to premise

its argument on its related contention that Clayton‟s federal
tax

debts

were

unaffected

by

the

bankruptcy

court‟s

general

discharge and remain viable for collection, subject to Clayton‟s
affirmative defense.

Implicit in the Government‟s argument is

the contention that because discharge is an affirmative defense,
the Government has no duty to affirmatively plead an exception
in its initial complaint.

To be charitable, the

Government

appears to have considered the pleading issue resolved after it
addressed it (albeit fleetingly) in its reply brief during its
previous effort to compel discovery from Clayton.

At that time,

the

argument

Government

“nonsensical”

and

dismissed
contended

Clayton‟s
that

it

pleading
“has

a

right

to

as
take

discovery on Clayton‟s defenses” and “can litigate this issue
now.”

(Doc. 41 at 2-3 & n. 1.)

13

Of course, the Magistrate Judge

was

then

addressing

only

the

Government‟s

motion

to

compel

discovery, which he granted.
The court is not persuaded that Clayton‟s contention that
he is entitled to judgment on the pleadings, at least to the
extent of the Government‟s proffered claim for willful evasion,
can be so cavalierly dismissed, especially based on the limited
authority the Government has provided the court.
The court begins with the proposition that Federal Rule of
Civil Procedure 8 requires

only that

a complaint contain “a

short and plain statement of the claim showing that the pleader
is

entitled

to

relief.”

Fed.

R.

Civ.

P.

8(a)(2).

The

requirement is not “onerous” and requires only that a plaintiff
“„give the defendant fair notice of what the plaintiff‟s claim
is and the grounds upon which it rests.‟”

Slade v. Hampton

Roads Reg‟l Jail, 407 F.3d 243, 252 (4th Cir. 2005) (quoting
Conley v. Gibson, 355 U.S. 41, 47 (1957)).

A plaintiff need not

allege a prima facie case, but must “„set forth facts sufficient
to allege each element of his claim.‟”

Chao v. Rivendell Woods,

Inc., 415 F.3d 342, 347 (4th Cir. 2005) (quoting Dickson v.
Microsoft Corp., 309 F.3d 193, 213 (4th Cir. 2002)).
Here,

the

Government

points

out

that

its

complaint

initially fulfilled the limited requirements of Rule 8 when it
was

filed.

Government

That
was

is

merely

true.

At

seeking

14

to

that

point,

collect

after

money

all,

owed

it

the
by

Clayton.

The complaint alleged that its suit against Clayton

was authorized by a delegee of the Secretary of the Treasury of
the United States and brought at the discretion of the Attorney
General of the United States, as required by 26 U.S.C. § 7401.
In addition, it alleged that Clayton owed certain amounts to the
IRS

that

had

not

been

paid.

Finally,

to

the

extent

the

Government intended to foreclose upon property subject to tax
liens, it alleged that tax liens had arisen against Clayton‟s
property.

See United States v. Ledford, No. 07-cv-01568-WYD-

KMT, 2010 WL 749843, at *7 (D. Colo. Mar. 3, 2010).

Since none

of Clayton‟s debts had been discharged in bankruptcy at the time
of the Government‟s complaint, the Government had no obligation
to plead an exception to discharge in bankruptcy (e.g., that
Clayton had willfully evaded his tax obligations).
Of course, just two months after the Government filed its
complaint, Clayton changed the course of this lawsuit by filing
for

bankruptcy

protection

discharge as a defense.

and

subsequently

asserted

his

The Government does not contend that

its complaint alleges sufficient facts to support its present
theory

that

Clayton

willfully

evaded

his

income tax payments under § 523(a)(1)(C).
therefore,
discharge

is
as

whether,
a

once

defense,

the

Clayton‟s
issues

were

obligation

to

make

The central question,
answer
properly

raised
joined

his
to

permit the Government to proceed on its willful evasion claim,

15

or whether Clayton‟s defense bars the claims presently alleged
in the complaint as a matter of law.
At

the

time

Clayton

“discharge

in

affirmative

defense

(2010)

(amended

filed

bankruptcy”
under

2010);

his

was

a

Rule

8.

see

also

answer

in

this

specifically
Fed.

R.

enumerated

Civ.

Mickowski

case,

P.

v.

8(c)(1)

Visi-Trak

Worldwide, LLC, 415 F.3d 501, 506 (6th Cir. 2005); 4 Collier on
Bankruptcy ¶ 523.04 (Alan N. Resnick & Henry J. Sommer eds.,
16th ed. 2011).5

“An affirmative defense is the „defendant‟s

assertion raising new facts and arguments that, if true, will
defeat the plaintiff‟s . . . claim, even if all allegations in
the complaint are true.‟”

Emergency One, Inc. v. Am. Fire Eagle

Engine Co., 332 F.3d 264, 271 (4th Cir. 2003) (quoting Saks v.
Franklin Covey Co., 316 F.3d 337, 350 (2d Cir. 2003)).
defendant

raises

an

affirmative

defense

in

complaining party has no obligation to respond.

his

When a

answer,

the

See, e.g., Fed.

Deposit Ins. Corp. v. First Nat‟l Fin. Co., 587 F.2d 1009, 1012
(9th Cir. 1978) (noting that “[t]he affirmative defense alleging
the agreement not to enforce the notes was necessarily first
brought forth in the answer,” to which “[n]o reply . . . is
5

Effective December 1, 2010, Rule 8(c) was amended to remove
“discharge in bankruptcy” from the list of affirmative defenses. Fed.
R. Civ. P. 8(c)(1) 2010 Amendments.
The notes accompanying the
amendment explain that 11 U.S.C. § 524(a)‟s automatic injunction
against the pursuit of a discharged debt makes listing discharge in
bankruptcy
as
an
affirmative
defense
“confusing”
because
the
injunction applies automatically to claims not exempted from discharge
under § 523(a). Id.

16

allowed[] unless ordered by the court.”).

In fact, under Rule

7(a), a reply to an answer is not permitted unless the court
orders one.

Fed. R. Civ. P. 7(a).

Instead, Rule 8(b)(6) states

that where no responsive pleading is required, an allegation
raised in an answer is considered denied or avoided.
Civ. P. 8(b)(6).

Fed. R.

Thus, when Clayton filed his answer with an

affirmative defense, the Government had no ability, much less an
obligation, to file a reply absent permission from the court.
See Fed. R. Civ. P. 7(a).

Neither party moved for this court to

require a response, and this court did not order one.

As a

result, Clayton‟s affirmative defense stands denied or avoided
under Rule 8(b)(6).
But this begs the question of whether Clayton‟s affirmative
defense is adequate as a matter of law to require judgment on
the pleadings in his favor.
point.

Neither party has cited a case on

The court‟s own research, however, points decidedly in

one direction.
Section

523(a)(1)(C),

as

it

relates

to

willful

contains both conduct and mental state requirements.

evasion,
Griffith

v. United States (In re Griffith), 206 F.3d 1389, 1396 (11th
Cir. 2000) (en banc).

Proving that the taxpayer engaged in

sufficient conduct for an exception to apply requires more than
a mere showing of a failure to pay income taxes.
244 F.3d at 1328-29.

In re Fretz,

Demonstrating the mental state requirement

17

requires

the

Government

to

show

by

a

preponderance

of

the

evidence that the debtor (1) had a duty to file income tax
returns, (2) knew he had such a duty, and (3) voluntarily and
intentionally violated that duty.

United States v. Fegeley (In

re Fegeley), 118 F.3d 979, 984 (3d Cir. 1997).

Most courts

appear to hold that if a creditor files an adversary proceeding
in bankruptcy and seeks a determination of nondischargeability
under § 523(a)(1)–(19), he must plead and prove the exception to
state a claim.

See

In

re Faruque, 2009 WL

2211210, at *4

(finding that a creditor‟s post-chapter 7 discharge complaint
seeking to contest the dischargeability of certain debts failed
to state a claim because it failed under Twombly to plausibly
plead any of § 523(a)‟s exceptions to discharge); see also In re
Roper, 266 B.R. at 421-22 (granting the state leave to amend its
answer to plead the basis for its assertion that the debtor‟s
tax debts were nondischargeable under § 523(a)(1)(C)).

But see

Landi v. United States (In re Landi), 289 B.R. 173, 175 (Bankr.
M.D. Fla. 2002) (rejecting without analysis debtors‟ argument
that

the

court

had

erred

by

determining

nondischargeability

under § 523(a)(1)(C) where the Government did not “specifically
plead” it), aff‟d, 316 B.R. 363 (M.D. Fla. 2004), aff‟d, 138 F.
App‟x 300 (11th Cir. 2005) (unpublished table decision).

As

Clayton

to

points

out,

therefore,

had

the

Government

sought

determine the nondischargeability of his federal tax debts in

18

the bankruptcy proceeding, it would have borne the burden of
pleading and proving the elements of a § 523(a)(1)(C) exception
to discharge.

The Government has not disputed that it must

prove willful evasion but has not articulated any reason, legal
or otherwise, why it should be subjected to a lesser pleading
requirement now.
The

Government

relies

solely

on

an

unreported

case,

Console, to relieve it of the obligation to plead the claim it
now raises.

In particular, the Government leans heavily on that

court‟s statement that the IRS need not appear in the bankruptcy
proceeding to pursue its § 523(a)(1)(C) claim but may wait until
“the

bankruptcy

discharge

is

invoked

as

a

defense

to

its

collection efforts, and then prove a factual basis for the tax
fraud exception in the collection proceedings.”
App‟x

at

principle

237.

But

that

§ 523(a)(1)(C)

a

the

court

general

exception,

was

only

discharge

which

the

affirming

does
IRS

Console, 291 F.

is

not
free

the

basic

address
to

a

prove

subsequently; it did not relieve the IRS of its obligation to
plead its claim.6

6

The Government‟s related response to Clayton‟s argument to dismiss
any unarticulated fraud claim is revealing.
The Government
acknowledges that were it to bring a fraud claim, it would have to
plead it and also meet Rule 9(b)‟s enhanced pleading requirements.
(Doc. 47 at 5 (“Because the United States is not asserting a claim of
fraud, the heightened pleading requirements contained in Fed. R. Civ.
P. 9(b) do not apply.”).)
The Government does not explain why it
would have to plead a fraud exception under § 523(a)(1)(C) but not a

19

The

Government

also

contends

“discharge” with “dischargeability.”
this is plainly wrong.

that

Clayton

confuses

(Doc. 47 at 2-3.)

But

Neither party is attacking the propriety

of the chapter 7 discharge order (e.g., whether it had been
obtained

by

complaint‟s

fraud).
basis

Clayton

for

simply

recovery

is

contends

barred

by

that

the

the

general

discharge in his favor – a question of discharge – and the
Government

contends that

its

claim does not fall within the

general discharge – a question of dischargeability.

See In re

Faruque, 2009 WL 2211210, at *3 (noting that the plaintiff, who
sought

to

avoid

the

effect

of

a

discharge

order

but

whose

complaint failed to state a claim under § 523(a), “has confused
the concepts of discharge and dischargeability”).
Turning to the Government‟s complaint, the court is simply
unable to glean a willful evasion claim from its allegations.
The allegation that Clayton filed tax returns for the relevant
years

plausibly

supports

knowledge of the duty.
that

intent

can

be

the

elements

of

duty

to

file

and

However, even with the understanding

alleged

generally,

the

allegation

that

Clayton “failed to pay” his taxes and assessments (Doc. 1 ¶ 18)
fails

to

plausibly

intentionally
willful evasion
standard).

state

a

violated

his

claim

(albeit

claim
duty.
not

20

that

he

voluntarily

Consequently,
under

Rule

in

9(b)‟s

and

taking
enhanced

judicial notice of Clayton‟s general discharge in his bankruptcy
proceeding, see Gilbert Land Dev., Inc. v. Wells, No. 10-2246,
2011 WL 1701800, at *1 n.1 (C.D. Ill. Mar. 9, 2011) (taking
judicial notice of state court orders not attached to complaint
on

motion

to

dismiss

because

they

are

a

matter

of

public

record), accepted by No. 10-2246, 2011 WL 1705008 (C.D. Ill. May
4, 2011), it is
general

plain

discharge

that Clayton‟s affirmative defense of

meets

the

Government‟s

claim

of

mere

nonpayment as a matter of law for tax years 2002 through 2006.7
To hold otherwise, as the Government would have it, would remove
Rule 12(c) (and probably Rule 12(b)(6) as well) from the rules
for

many

pursue

honest

only

exception.

debtors

nonpayment

where
of

the

IRS

taxes

alleges

that

and

otherwise

seeks

to

meet

no

Such a conclusion would be unnecessary to preserve

the § 523(a)(1)(C) exception and would run counter to the “fresh
start” provisions of the Bankruptcy Code.

In re Strack, 524

F.3d at 497 (noting that Congress has provided “several limited
exceptions
must

to

construe

this

presumption

narrowly

„to

of

dischargeability,

protect

7

the

which

[Bankruptcy

we

Act‟s]

Though neither the Government‟s Rule 26(f) report nor its response to
Clayton‟s motion articulates any basis for recovery against Clayton
other than § 523(a)(1)(C), it appears that the complaint sufficiently
states a claim for nondischargeability of Clayton‟s 2007 income tax
obligation under § 523(a)(1)(A), which excepts from discharge income
tax debts due within three years of the filing of the bankruptcy
petition.
11 U.S.C. §§ 523(a)(1)(A), 507(a)(8); see Lewis v. United
States (In re Lewis), 151 B.R. 140, 141 (Bankr. W.D. Tenn. 1992). The
remainder of the income tax debts sought, at least on the face of the
complaint, exceeds the window of that exception.

21

purpose

of

providing

debtors

a

fresh

start‟”

(alteration

in

original) (quoting Foley &. Lardner v. Biondo (In re Biondo),
180 F.3d 126, 130 (4th Cir. 1999))).

It especially makes little

sense here because the Government is put on notice of the entry
of an order of discharge and seeks to proceed on a theory of
wrongful conduct under an express exception in § 523(a)(1)(C).
Given

the

history

of

this

case,

however,

the

court

is

convinced that immediate dismissal, as Clayton urges, would be
improper.

Clayton has been on notice of the Government‟s theory

of recovery for over a year, can claim no prejudice, and waited
to file the present motion over eight months after he filed his
answer

and

amendments

six
to

months

the

expiration

pleadings

the

after

set

forth

approving the Rule 26(f) report.

in

of

the

the

time

court‟s

for

Order

(See Doc. 32 at 2; Doc. 43.)

There is some reason to believe, therefore, that Clayton was
lying in wait to file the motion.
may

have

implicitly

(not

unreasonably)

rejected

once

Furthermore, the Government

considered
Magistrate

the

the

pleading

Judge

issue

enforced

the

Government‟s motion to compel discovery.
Where

an

affirmative

defense

appears

to

meet

the

allegations of the complaint as a matter of law, the court has
at least two available options other than dismissal.

One option

is

should

be

Civ.

P.

to

freely

grant
given

the

Government

when

justice

leave
so

22

to

amend,

requires.

which
Fed.

R.

15(a)(2).
view

in

Indeed, this appears to have been the Government‟s
other

litigation

because

when

faced

with

a

nearly

identical scenario, the Government sought just such a course.
See, e.g., Plaintiff United States‟ Unopposed Motion for Leave
to File Second Amended Complaint, United States v. Beninati, 438
B.R.

755

(D.

Mass.

2010)

(No.

06-CV-11296-NMG),

Doc.

22

(containing United States‟ motion, post-petition but prior to
the debtor‟s answer, seeking leave to amend its pre-petition
complaint

to

assert

§ 523(a)(1)(C)).

nondischargeability

of

tax

debts

under

Why the Government did not seek an amendment

here is unclear.
Or, as another option, there is some authority that the
court may order the Government to file a reply under Rule 7 to
articulate

its

claim

to

alleged in his answer.

avoid

Clayton‟s

affirmative

defense

See Schultea v. Wood, 47 F.3d 1427,

1432-33 (5th Cir. 1995) (en banc) (permitting § 1983 plaintiff
to

file

a

reply

under

Rule

7

to

tailor

his

claims

of

maliciousness to meet an assertion of qualified immunity in an
affirmative

defense

by

a

defendant

sued

in

his

individual

capacity); 2 West‟s Federal Forms, District Courts, Civil § 1412
(5th ed. 2006) (form reply to affirmative defense of discharge
in bankruptcy).
For the reasons noted above, the court determines that the
allowance of an amendment is the better practice.

23

See, e.g., In

re

Griffith,

206

F.3d

at

1392

n.1

(affirming

the

panel‟s

rejection of the creditor‟s contention that the bankruptcy court
abused its discretion in allowing the Government to amend to
assert

specifically

its

§ 523(a)(1)(C)

counterclaim);

In

re

Roper, 266 B.R. at 421-22 (granting leave to amend answer to
articulate § 523(a)(1)(C) exception claim); cf. Hassan v. United
States (In re Hassan), 301 B.R. 614, 619 & n.2 (S.D. Fla. 2003)
(rejecting debtors‟ argument – that the bankruptcy court erred
in

entering judgment for the IRS where neither the debtors‟

complaint nor the IRS‟ answer in the bankruptcy court adversary
proceeding raised exceptions under § 523(a)(1)(C) – because the
willful evasion claim had been stipulated and agreed to by the
parties in the pretrial order, thus superseding the pleadings).
Accordingly, the Government will be permitted ten (10) days
within which to amend its complaint to articulate its claim for
willful evasion under 11 U.S.C. § 523(a)(1)(C).

In the absence

of such amendment, the court will grant Clayton‟s motion for
judgment

on

the

pleadings

for

tax

years

2002

through

2006.

Because the parties have long been aware of the Government‟s
willful evasion theory and have conducted discovery on it, no
change is anticipated at this time in the current schedule or
trial date.

24

III. CONCLUSION
For the reasons set forth above, therefore,
IT IS ORDERED that the Government has ten (10) calendar
days within which to file an amendment to its complaint to set
forth

its

claim

Government
Pleadings

does

under
so,

pursuant

to

11

U.S.C.

Clayton‟s
Federal

§ 523(a)(1)(C).

Motion
Rule

of

for
Civil

If

Judgment

the

on

the

Procedure

12(c)

(Doc. 43) will be deemed DENIED, and Clayton will have ten (10)
calendar days from the filing of any amended complaint within
which to file an answer; if the Government fails to timely file
an amended complaint, the court will grant Clayton‟s motion for
judgment

on

the

pleadings

as

to

claims

for

tax

years

through 2006.

/s/
Thomas D. Schroeder
United States District Judge
December 13, 2011

25

2002