Gilbert Dreyfuss v. Timothy Cory

Opinion by Judge MILAN D. SMITH, Jr.; Concurrence by Judge WALLACE.

OPINION

In this bankruptcy appeal, we consider whether section 503 of the Bankruptcy Code, 11 U.S.C. § 503 (b), requires a chapter 7 trustee to provide notice to creditors, and obtain a hearing, before paying taxes incurred by the estate. The Appellee, a chapter 7 trustee, paid the 2005 federal income taxes of a bankruptcy estate without first providing notice to the Appellant, a creditor of the estate, requesting a hearing to determine the appropriate amount of those taxes, or obtaining an order of the bankruptcy court authorizing the payment of those taxes. The Appellant contends that the bankruptcy court erred by approving the Trustee’s Final Report without holding a hearing to determine the appropriate amount of the 2005 federal income taxes, and without approving the payment of those taxes. The Appellee argues that construing the Bankruptcy Code to require trustees to provide notice and obtain a hearing before paying taxes incurred by the estate would conflict with trustees’ other obligations under the Bankruptcy Code and the Internal Revenue Code.

We hold that the plain language of section 503 requires…

concurring:

I concur in the opinion because I agree that the trustee did not follow section 503(b)’s requirement that the payment be made only “after notice and a hearing.” The trustee does not argue that notice was somehow “[injappropriate in the[se] particular circumstances.” 11 U.S.C. § 102 (1)(A). I write separately, however, to highlight for the court on remand my concerns about the timeliness of Drey-fuss’s objection.

The thrust of Dreyfuss’s argument over the course of this litigation has been that the trustee paid the wrong amount of taxes. The majority opinion, however, focuses instead on Dreyfuss’s alternative argument — that the trustee failed to provide a “notice and a hearing” before making the tax payment. But the opinion does not address the timeliness of Dreyfuss’s original objection in the bankruptcy court.

A party must object within a reasonable time or risk being deemed to have consented to the action to which it objects. Cf. Spaulding v. Univ. of Wash., 740 F.2d 686, 695 (9th Cir.1984) (“Parties should object to a reference to a magistrate, or a special master at the time the reference is made or within a reasonable time thereafter” or risk waiving the…

FACTS AND PROCEDURAL BACKGROUND

The Appellant, Gilbert Dreyfuss, holds an allowed unsecured claim of approximately $1,006,417.68 against the bankruptcy estate of Sheldon Cloobeck. Cloobeck commenced this bankruptcy case by filing a voluntary chapter 11 petition on January 12, 2005. The case was converted to a chapter 7 case on or about October 19, 2005. Following the conversion, the Appellee, Timothy S. Cory (Trustee), was appointed the chapter 7 trustee.

On or about May 13, 2009, the Trustee paid $340,895 of estate funds to the IRS to satisfy the estate’s 2005 federal income tax liability. The Trustee did not give notice, or seek a hearing, before making the 2005 tax payment, nor did the bankruptcy court authorize the payment of 2005 taxes before the Trustee made that payment. Moreover, the Trustee did not notify either the Appellant or the bankruptcy court of the amount of 2005 taxes he ultimately paid before making the payment to the IRS.

On May 9, 2012, the Trustee filed the Final Report with the bankruptcy court. The Appellant filed an opposition to the Final Report on June 13, 2012. In the opposition, the Appellant argued that it was improper for the Trustee…