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In re Austin

United States Court of Appeals, Eighth Circuit

April 9, 2018

In re: Scott S. Austin; Anna M. Austin, formerly known as Anna DeFalco Debtors
v.
Scott S. Austin; Anna M. Austin Debtors - Appellees United States of America, on behalf of the Internal Revenue Service Creditor - Appellant

          Submitted: February 23, 2018

          Appeal from United States Bankruptcy Court for the Eastern District of Missouri - St. Louis

          Before SALADINO, Chief Judge, SHODEEN and SANBERG, Bankruptcy Judges.

          SANBERG, Bankruptcy Judge.

          The Appellant, United States of America, appeals the July 24, 2017, order of the Bankruptcy Court sustaining the Debtors' objection to a proof of claim filed by the Internal Revenue Service. We have jurisdiction over this appeal from the final order of the Bankruptcy Court. See 28 U.S.C. § 158(b).

         For the reasons stated below, we reverse.

         STANDARD OF REVIEW

         The question of whether substantial evidence was presented in support of the objection as a matter of law sufficient to rebut the Internal Revenue Service's ("IRS") proof of claim is reviewed de novo. Fed.R.Bankr.P. 8013; Halverson v. Estate of Cameron (In re Mathiason), 16 F.3d 234, 235 (8th Cir. 1994); Dove-Nation v. eCast Settlement Corp. (In re Dove-Nation), 318 B.R. 147, 150 (B.A.P. 8th Cir. 2004). We review the Bankruptcy Court's findings of fact for clear error and its conclusions of law de novo. Brown v. I.R.S. (In re Brown), 82 F.3d 801, 805 (8th Cir. 1996), abrogated on other grounds by Raleigh v. Ill. Dep't of Revenue, 503 U.S. 15, 120 S.Ct. 1951 (2000); Keating v. C.I.R., 544 F.3d 900 (8th Cir. 2008), Blodgett v. C.I.R., 394 F.3d 1030, 1035 (8th Cir. 2005)(finding in the context of proving tax loss, which is entitled to a presumption of correctness, that "we review de novo the legal question of whether a taxpayer produced sufficient evidence to shift the burden of proof").

         BACKGROUND

         The Debtors, Scott S. and Anna M. Austin ("Austins" or "Appellees"), filed a voluntary petition under Chapter 13 of the Bankruptcy Code with the Bankruptcy Court for the Eastern District of Missouri on December 8, 2014. In their schedules, the Austins listed two pending worker's compensation claims as contingent and unliquidated exempt property. These claims were valued at $0.00 or an "unknown value." The Austins listed the IRS as a secured creditor. The IRS filed proof of claim no. 5-1, asserting in part a secured claim as a result of a tax lien.

          On January 9, 2015, the Austins filed an objection to claim no. 5-1 ("January Objection"). They objected to the amount of the IRS's priority claim and the amount of the claim listed as secured. They argued that no value should be attributable to their worker's compensation claims in determining the secured portion of the IRS's claim. They also argued, in the alternative, that since there were neither settlement offers nor a basis to determine the value of the worker's compensation claims, the present value of the worker's compensation claims should be $0.

         On July 13, 2015, the Bankruptcy Court held a hearing on the January Objection. No evidence was presented at this hearing and the matter was taken under submission.

         On September 18, 2015, the Bankruptcy Court overruled the Austins' January Objection and held that the Austins had failed to meet their burden to produce substantial evidence to rebut the IRS's claim. The Bankruptcy Court disagreed with the Austins' assertion that their worker's compensation claims had no value. In re Austin, 538 B.R. 543 (Bankr. E.D. Mo. 2015)("Austin 1"). Rather, the Bankruptcy Court held that because the claims were being pursued at the time the petition was filed, they must have had some value. Id. at 546. Therefore, the Bankruptcy Court overruled the Austin's objection. Id. at 546-547.

         In the meantime, on July 28, 2015 (while Austin 1 was under submission), the Austins negotiated a settlement of the worker's compensation claims for $21, 448.80. After attorneys' ...


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