Puckett v. Commissioner INS

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 99-20697
_____________________

GEORGE C PUCKETT, JR; MARTHA SUE PUCKETT
Plaintiffs-Appellants

v.

COMMISSIONER OF THE INTERNAL REVENUE SERVICE
Defendant-Appellee

_________________________________________________________________

Appeal from the United States District Court
for the Southern District of Texas
(H-98-CV-1788)
_________________________________________________________________

April 12, 2000

Before KING, Chief Judge, and REAVLEY and STEWART, Circuit
Judges.

PER CURIAM:*

Plaintiffs-Appellants George C. Puckett, Jr. and Martha Sue

Puckett appeal the district court’s grant of judgment on the

pleadings in favor of the Internal Revenue Service. On appeal,

Plaintiffs-Appellants argue that the district court erred in

dismissing their claim for injunctive relief, and in ruling that

their tax refund claims were barred by res judicata. For the

*
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
reasons stated below, we AFFIRM the judgment of the district

court.

I. FACTUAL AND PROCEDURAL HISTORY

In July 1987, Plaintiffs-Appellants George C. Puckett, Jr.

and Martha Sue Puckett (the “Pucketts”) petitioned for Chapter 11

bankruptcy protection. In September 1990, Defendant-Appellee the

Commissioner of the Internal Revenue Service (the “IRS”) filed a

proof of claim, which it amended in January and February 1991.

The IRS asserted an administrative claim for $190,357.10 in post-

petition tax liability for the years 1987, 1988, 1989, and 1990.

The IRS also assessed a total of $158,879.67 in pre-petition tax

liabilities for the years 1985 and 1986 as an unsecured priority

claim. Finally, the proof of claim for pre-petition taxes also

calculated that the Pucketts owed $160,647.48 in interest and

penalties on their pre-petition taxes. The Pucketts did not

object to either the IRS’ original or amended proofs of claim.

The Pucketts submitted a First Amended Plan of

Reorganization as Supplemented (the “Plan”) in March 1991. The

Plan specifically incorporated the tax liability averred by the

IRS as allowed claims. The post-petition taxes (1987-1990) were

treated as a Class 2 secured claim entitled to priority under 11

U.S.C. § 506. The Plan provided for full payment of this claim.

Next, the pre-petition taxes were categorized as a Class 3 claim

with priority pursuant to 11 U.S.C. § 507(a)(7). The Plan

provided that funds remaining after the payment of the Class 1,

2, and 4 claims would be applied to this claim. It further

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stated that “TO THE EXTENT THAT THE CLASS 3 CLAIM IS NOT PAID IN

FULL, THE INTERNAL REVENUE SERVICE MAY TAKE SUCH ACTIONS AS ARE

AUTHORIZED BY THE INTERNAL REVENUE CODE TO ASSESS AND COLLECT ANY

UNPAID BALANCE.” Debtors’ First Amended Plan of Reorganization

As Supplemented, at 7. Finally, the interest and penalties on

pre-petition taxes were classified as a Class 7 unsecured claim

under the Plan. Noting that no funds would be available to

satisfy this claim after partial payment of the Class 3 claim

occurred, the Plan declared:

THE INTERNAL REVENUE SERVICE MAY TAKE SUCH ACTIONS AS
ARE AUTHORIZED BY THE INTERNAL REVENUE CODE TO ASSESS
AND COLLECT ALL PENALTIES AND THE INTEREST OWING
THEREON WHICH ARE ATTRIBUTABLE TO THE DEBTOR’S [sic]
PRE-PETITION FEDERAL INCOME TAXES AND FEDERAL
WITHHOLDING TAXES AND INCLUDED IN THIS PLAN AS A CLASS
7 CLAIM.

Debtors’ First Amended Plan of Reorganization, As Supplemented,

at 9.

On April 2, 1991, the bankruptcy court entered a

confirmation order. The order established a 30-day period during

which objections to claims could be brought. However, the

Pucketts did not object to the IRS’ proofs of claim within this

period. In June 1992, the Pucketts delivered two checks to the

IRS. One check, for $225,564.90, was submitted in satisfaction

of the Class 2 administrative claim for post-petition taxes. The

second, for $175,000, was applied to the Class 3 claim for pre-

petition taxes. The remainder of the Class 3 claim, as well as

the entire Class 7 claim for interest and penalties on pre-

petition taxes, went unpaid.

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 In June 1994, the Pucketts filed amended tax returns for the

years 1985 to 1988. The Pucketts claimed that a 1984 net

operating loss (“NOL”) carried forward from 1984 to 1985 and

reduced their 1985 tax liability by $113,807; and that a 1989 NOL

carried back from 1989 to 1987 and 1988 and reduced their tax

liability for those two years by $82,143.1 The IRS characterized

the Pucketts’ amended returns as a claim for tax adjustment, and

denied the claim on the grounds of res judicata. The Pucketts

appealed to the IRS appeals division, which in March 1998

likewise denied their claim.

The Pucketts subsequently filed suit in the United States

District Court for the Southern District of Texas. The Pucketts’

complaint sought (1) injunctive relief from collection efforts by

the IRS, and (2) a refund on their 1985-88 income taxes.2 In

August 1998, the IRS filed an answer. The IRS then filed a

motion to dismiss under Federal Rule of Civil Procedure 12(b)(6),

asserting, inter alia, that res judicata precluded the Pucketts’

refund claim. The Pucketts filed a response to the IRS’ 12(b)(6)

motion, and also moved to strike the motion as untimely.

On June 22, 1999, the district court ruled on the parties’

motions. The court converted the IRS’ 12(b)(6) motion to a

motion for judgment on the pleadings under Federal Rule of Civil

1
The Pucketts also claimed that deductions for business
expenses reduced their 1986 tax liability by $64,607.
2
The Pucketts’ complaint alleged numerous grounds for a
refund. On appeal, they only assert that they are due refunds
because of NOL carryover and carryback deductions applied to
their tax liability for the years 1985, 1987, and 1988.

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Procedure 12(c), which, the court found, obviated the Pucketts’

motion to strike. The district court then considered the merits

of the IRS’ motion, and determined that res judicata barred the

Pucketts’ refund claim. The court did not address the Pucketts’

claim for injunctive relief. The district court granted the IRS’

motion for judgment on the pleadings and dismissed the Pucketts’

case with prejudice. The Pucketts timely appeal.

II. DISCUSSION

On appeal, the Pucketts contend that the district court

erred by failing to address their claim for injunctive relief,3

and by dismissing their case with prejudice. The IRS reasserts

that res judicata bars the Pucketts’ refund claim, and argues

that the Pucketts’ claim is also time-barred.

We review a judgment on the pleadings pursuant to Federal

Rule of Civil Procedure 12(c) de novo. See St. Paul Fire &

Marine v. Convalescent Servs., 193 F.3d 340, 342 (5th Cir. 1999)

(citing St. Paul Ins. of Bellaire v. AFIA Worldwide Ins., 937

F.2d 274, 279 (5th Cir. 1991)). In our review, we look only at

the pleadings, and accept all allegations contained within as

true. See id. (citations omitted).

A. Res Judicata

A bankruptcy proceeding bars a later suit if (1) the parties

are identical in the two actions; (2) the prior judgment was

3
At oral argument, the Pucketts stated that they had
entered into an agreement with the IRS that rendered moot the
claim for injunctive relief. As a result, we do not address this
claim.

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rendered by a court of competent jurisdiction; (3) there was a

final adjudication on the merits; and (4) the same cause of

action was involved in both cases. See Eubanks v. F.D.I.C., 977

F.2d 166, 169 (5th Cir. 1992).

Our review of the record and of the relevant caselaw

confirms that all four conditions are satisfied here. The

Pucketts instituted both the bankruptcy proceeding and the refund

action in the district court. The IRS, likewise, was a party to

both actions. The agency was named as the defendant in the

district court case, and became a party to the bankruptcy

proceeding by participating as a creditor. See Republic Supply

Co. v. Shoaf, 815 F.2d 1046, 1051 (5th Cir. 1987). Furthermore,

the bankruptcy judge undoubtedly had jurisdiction to issue an

order confirming their proposed plan of reorganization. It is

well-settled, moreover, that a confirmation order issued by a

bankruptcy court constitutes a final adjudication on the merits

for the purposes of a res judicata analysis. See Eubanks, 977

F.2d at 170 (citing, inter alia, 11 U.S.C. § 1141(a) and Stoll v.

Gottlieb, 305 U.S. 165, 170-71 (1938)). This court has also held

that “an order allowing a proof of claim is, likewise, a final

judgment.” In re Baudoin, 981 F.2d 736, 742 (5th Cir. 1993).

Finally, we consider whether the bankruptcy proceeding and

the subsequent refund claim involve the same cause of action. We

have stated that “one’s total income tax liability for each

taxable year constitutes a single, unified cause of action,

regardless of the variety of contested issues and points that may

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bear on the final computation.” Finley v. United States, 612

F.2d 166, 170 (5th Cir. 1980) (citing Commissioner v. Sunnen, 333

U.S. 591, 598 (1948)). Consequently, “if a claim of liability or

non-liability relating to a particular tax year is litigated, a

judgment on the merits is res judicata as to any subsequent

proceeding involving the same claim and the same tax year.”

Sunnen, 333 U.S. at 598. We therefore find that the four-part

test has been satisfied.

Under the law of this circuit, however, res judicata does

not apply unless a party could and should have brought its claims

in the former proceeding. See Eubanks, 977 F.2d at 173

(citations omitted). Res judicata precludes a later claim if a

party was aware of the claim at the time of the prior proceeding.

See id. at 175. Furthermore, res judicata bars a cause of action

implicated in a proof of claim during a prior bankruptcy

proceeding, to which the party bringing the second action did not

object. See In re Baudoin, 981 F.2d at 744; Southmark Properties

v. Charles House Corp., 742 F.2d 862, 872 (5th Cir. 1984); see

also In re Holly’s, Inc., 172 B.R. 545, 567 (W.D. Mich. 1994),

aff’d, 178 B.R. 711 (W.D. Mich. 1995).

The Pucketts do not contend that they were unable to bring

their claim to reduce their 1985, 1987, and 1988 tax liability by

applying carryover and carryback NOLs before the bankruptcy

court. Our review of the record, furthermore, indicates that

they had ample opportunity to do so. There is no allegation in

the record that the facts from which the existence of the 1984

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and 1989 NOLs were determined were not available to the Pucketts

at the time that the IRS filed its amended proof of claim in

1991. In fact, the Pucketts had themselves ascertained that they

had suffered a loss in 1984, and declared it on their timely-

filed 1984 tax return. Moreover, the Pucketts do not deny that

they could have contested the amount of tax liability assessed by

the IRS by either objecting to the proofs of claim or requesting

the bankruptcy court to determine the amount of tax pursuant to

11 U.S.C. § 505(a)(1).

In addition, the Pucketts should have brought their claim

during the bankruptcy proceeding. The IRS had filed proofs of

claim pursuant to Federal Rule of Bankruptcy Procedure 3003.

Under 11 U.S.C. § 502(a), a claim is deemed allowed if no

objection is filed. An allowed claim incorporated in a

reorganization plan becomes binding upon the debtor once the plan

has been confirmed. See 11 U.S.C. § 1141(a). It is undisputed

that the Pucketts failed to object to the tax liability asserted

in the proofs of claim, either before or after the confirmation

order. Accordingly, we find that res judicata precludes the

Pucketts’ lawsuit. To find otherwise would undermine the claims

allowance procedure of the bankruptcy courts, and grant the

Pucketts an unjustified opportunity to relitigate their tax

liability.

B. New Arguments on Appeal

The Pucketts submit two new arguments on appeal in support

of the proposition that res judicata principles do not apply to

8
NOLs. They contend that the confirmation order has no preclusive

effect under 26 U.S.C. § 6511(d)(2)(B)(iii)(I), which provides

that final court decisions are not conclusive with respect to

“the net operating loss deduction and the effect of such

deduction.” The Pucketts also assert that NOLs are contingent

upon uncertain future events, and therefore do not constitute

“justiciable controversies.”

Because the Pucketts did not raise these arguments before

the district court, we will not consider them on appeal unless

they meet the plain error standard. See Forbush v. J.C. Penney

Co., 98 F.3d 817, 823 (5th Cir. 1996) (citing U.S. v. Calverley,

37 F.3d 160, 163 (5th Cir. 1994) (en banc)). Under this

standard, we may exercise our discretion to correct a legal error

that is clear or obvious and that affects substantial rights “if

the error seriously affects the fairness, integrity, or public

reputation of judicial proceedings.” Douglass v. United Servs.

Auto. Ass’n, 79 F.3d 1415, 1424 (5th Cir. 1996) (en banc) (citing

U.S. v. Olano, 507 U.S. 725, 736 (1993)).

We find that this standard has not been met with regard to

either argument. The Pucketts have cited no authority for the

proposition that failing to apply § 6511(d)(2)(B)(iii)(I) to NOL

carryovers constitutes a clear error of law. Furthermore, it is

questionable whether preventing the Pucketts from applying this

subsection to the 1989 NOL carryback would affect their

substantial rights, given the time limitations established by

§ 6511(d)(2)(A). In any event, we are not persuaded that the

9
error, if any, is such that the integrity of the judicial process

would be compromised by our failure to correct it. We therefore

find that the Pucketts have not shown plain error.

III. CONCLUSION

For the foregoing reasons, we AFFIRM.

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