IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-10746
In the Matter of: JOHN H. CARNEY,
Debtor
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JOHN H. CARNEY
Appellant,
versus
INTERNAL REVENUE SERVICE
Appellee.
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Appeal from the United States District Court
for the Northern District of Texas
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July 16, 2001
Before HIGGINBOTHAM and BENAVIDES, Circuit Judges, and
DUPLANTIER, District Judge.*
BENAVIDES, Circuit Judge:
John H. Carney appeals from an adverse summary judgment in
his challenge to the validity of tax deficiency claims made
against him by the Internal Revenue Service (IRS). The
deficiencies stem from the IRS’s determination that certain
partnership investments by Carney lacked economic substance, and
hence could not support tax credits and depreciation deductions
*
District Judge of the Eastern District of Louisiana, sitting by
designation.
that Carney claimed. We AFFIRM the grant of summary judgment
based on Carney’s Rule 36(a) deemed admission that the proof of
claim filed by the IRS in his bankruptcy proceeding accurately
described his tax obligations.
FACTUAL AND PROCEDURAL BACKGROUND
Carney, an attorney licensed to practice in Texas,
participated as a limited partner in the Cinema ‘84 and Cinema
‘85 limited partnerships (the Cinema Partnerships) from 1984
through 1989. On his tax returns for these periods, Carney
claimed deductions, depreciation, and tax credits with respect to
his investments in the Cinema Partnerships. In 1991, the IRS
determined that the Cinema Partnerships were tax shelter
investments lacking economic substance. Consequently, credits
and deductions claimed by individual Cinema partners, such as
Carney, were no longer viable. In 1992, the Cinema Partnerships’
tax matters partner petitioned the Tax Court for judicial review
of the IRS’s determination.1
In January 1995, Carney filed a petition for relief under
Chapter 11 of the Bankruptcy Code.2 The petition was later
1
On September 1, 2000, the Tax Court dismissed the Cinema
Partnerships proceedings for failure to prosecute.
2
As a partner, Carney was originally a party to Cinema
Partnerships’ Tax Court proceeding. Carney’s bankruptcy petition
severed him from that case, however. See 26 U.S.C. §§
6226(d)(1)(A), 6231(c)(2); Treas. Reg. §301.6231(c)-7T(a), 52
Fed. Reg. 6779, 6793 (1987).
2
converted to Chapter 7. In May 1995, the IRS filed a proof of
claim against Carney relating, inter alia, to unpaid federal
income taxes from the 1984, 1985, 1986, 1987 and 1989 tax years.
The claimed deficiencies stemmed from the IRS’s disallowance of
the deductions and credits claimed by Carney in relation to the
Cinema Partnerships and the Bellbrook Joint Venture Partnership.
Carney did not object to the IRS’s proof of claim. In December
1995, the IRS issued to Carney notices of deficiencies and
penalties with respect to the claimed obligations. Carney
received a general bankruptcy discharge in December 1996.
The IRS assessed the 1986, 1987 and 1989 deficiencies and
penalties on July 16, 1997, and the 1984 and 1985 deficiencies
and penalties on August 11, 1997. When the IRS attempted to
collect the assessments in 1998, Carney commenced the present
action in the bankruptcy court seeking a determination that his
obligations had been discharged. Carney later amended his
complaint to challenge the validity of the claimed deficiencies.
After a period of discovery and negotiation, the IRS moved for
summary judgment in September 1999. In addition to responding to
the IRS’s motion for summary judgment, Carney filed a motion to
compel responses to certain interrogatories and requests for
production previously served on the IRS, as well as a request for
a scheduling order setting a future date to hear summary judgment
arguments.
3
The bankruptcy court granted the IRS’s motion for summary
judgment. As to the validity of the deficiency claims, the court
stated that Carney failed to produce sufficient evidence creating
a material fact question with respect to his claim for the
deductions and tax credits. Alternatively, the court held that
Carney’s failure to respond to the IRS’s requests for admission
created a deemed admission conclusively establishing the validity
of the IRS’s claims. With respect to the dischargeability of the
tax claims, the court relied on Bankruptcy Code sections
523(a)(1)(A) and 507(a)(8)(A)(iii) to hold that the taxes owed
were non-dischargeable because they were assessable, but not
assessed at the time that Carney filed his bankruptcy petition.
See 11 U.S.C. §§ 523(a)(1)(A); 507(a)(1)(A)(iii). The court
denied Carney’s discovery requests, concluding that Carney “could
have and should have been diligent in filing his Motion to Compel
Discovery Responses, but he was not.” The court suggested that
Carney made his motion to compel discovery “as some sort of
defensive measure in order to distract the Court’s attention from
the Summary Judgment Motion.” Carney appealed these rulings to
the district court, which affirmed summarily. This appeal
followed.
DISCUSSION
Pursuant to section 158(d) of Title 28, this Court exercises
jurisdiction over the bankruptcy court’s final orders fixing the
4
amount of Carney’s tax debt and holding that debt to be non-
dischargeable. 28 U.S.C. § 158(d). Carney has waived the
dischargeability issue on appeal by failing to offer a legal or
factual explanation of how the bankruptcy court erred when it
held his tax obligations non-dischargeable. See American States
Ins. Co. v. Bailey, 133 F.3d 363, 372 (5th Cir. 1998) (“Failure
to provide any legal or factual analysis of an issue results in
waiver.”).3 Thus, our review focuses on the bankruptcy court’s
summary judgment that the IRS’s amended proof of claim correctly
stated the value of Carney’s tax obligations.
Carney essentially argues that the bankruptcy court granted
summary judgment in this case prematurely, before the IRS had
responded to his discovery requests. His appellate brief and
oral argument have both focused on the bankruptcy court’s
consideration of allegedly improper evidence introduced by the
IRS to challenge Carney’s credibility with respect to his motion
to compel discovery. If the bankruptcy court considered improper
evidence when denying his motion to compel, Carney reasons that
the grant of summary judgment should be overturned. In the
alternative, Carney maintains that his affidavit testimony
3
Even if Carney had not waived error, his failure to present any
evidence to rebut the IRS’s explanation that his tax obligations
fall within the exception to discharge described in section
523(a)(1)(A) and 507(a)(8)(A)(iii) would support the grant of
summary judgment on this issue.
5
creates a genuine issue of material fact as to his entitlement to
claimed credits and deductions.
Carney’s arguments neglect his own failures to comply with
the Federal Rules of Civil Procedure governing discovery. As
explained below, Carney’s failure to respond to the IRS’s Federal
Rule of Civil Procedure 36 request that he admit the accuracy of
the IRS’s proof of claim conclusively established the validity of
that claim.4 Carney’s attempt to contradict this admission
through his affidavit testimony is precluded by the plain
language of Rule 36 and this Circuit’s precedent. Though Rule 36
allows litigants to request leave to withdraw or amend an
admission, Carney never made such a motion before the bankruptcy
court in this case. Consequently, we affirm the grant of summary
judgment based on Carney’s deemed admissions.
We review orders granting summary judgment de novo, guided
by the same standard as the bankruptcy and district courts:
Federal Rule of Civil Procedure 56. Stults v. Conoco, Inc., 76
F.3d 651, 654 (5th Cir. 1996). Pursuant to Rule 56, a party may
obtain summary judgment when "the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
4
Bankruptcy rule 7036 provides that Federal Rule of Civil
Procedure 36 operates in bankruptcy proceedings. BANKR. R. 7036.
6
material fact and that the moving party is entitled to judgment
as a matter of law." FED. R. CIV. P. 56(c). The IRS argues, and
the bankruptcy court alternatively held, that Carney admitted the
validity and value of the IRS’s deficiency claims by failing to
respond to the IRS’s Rule 36 requests for admission.
Specifically, Carney failed to respond to the IRS’s request that
he admit the following: “You owe the [IRS] the taxes reflected on
the Proof of Claim attached hereto as Government Exhibit 1.”
According to the IRS, this admission resolves all material fact
questions regarding the validity of its claims against Carney.
Federal Rule of Civil Procedure 36(a)states in pertinent
part:
A party may serve upon any other party a written
request for the admission, for purposes of the pending
action only, of the truth of any matters within the
scope of Rule 26(b) set forth in the request that
relate to statements or opinions of fact or of the
application of law to fact, including the genuineness
of any documents described in the request. ....
The matter is admitted unless, within 30 days after
service of the request, or within such shorter or
longer time as the court may allow or as the parties
may agree to in writing, subject to Rule 29, the party
to whom the request is directed serves upon the party
requesting the admission a written answer or objection
addressed to the matter....
FED. R. CIV. PROC. 36(a)(West 2001). Rule 36 allows litigants to
request admissions as to a broad range of matters, including
ultimate facts, as well as applications of law to fact.
7
See, e.g., Stubbs v. Comm’r Internal Rev., 797 F.2d 936, 938
(11th Cir. 1986); Campbell v. Spectrum Automation Co., 601 F.2d
246, 253 (6th Cir. 1979). C.f. Playboy Enterprises, Inc. v.
Welles, 60 F.Supp.2d 1050, 1057 (S.D. Cal. 1999) (“Requests for
admissions cannot be used to compel an admission of a conclusion
of law.”); Kosta v. Connolly, 709 F. Supp. 592, 594 (E.D. Pa.
1989)(suggesting that Rule 36 should not be employed to establish
facts that are obviously in dispute). Such breadth allows
litigants to winnow down issues prior to trial and thus focus
their energy and resources on disputed matters. WRIGHT, MILLER &
MARCUS, FEDERAL PRACTICE AND PROCEDURE: Civil 2d § 2254 (1994). For
Rule 36 to be effective in this regard, litigants must be able to
rely on the fact that matters admitted will not later be subject
to challenge. American Auto Ass’n v. AAA Legal Clinic, 930 F.2d
1117, 1119 (5th Cir. 1991). Thus, Rule 36(b) provides that
“[a]ny matter admitted . . . is conclusively established unless
the court on motion permits withdrawal or amendment of the
admission.” FED. R. CIV. PROC. 36(b).
This Circuit has stressed that a deemed admission can only
be withdrawn or amended by motion in accordance with Rule 36(b).
American Auto, 930 F.2d at 1120. In order to allow withdrawal of
a deemed admission, Rule 36(b) requires that a trial court find
that withdrawal or amendment: 1) would serve the presentation of
8
the case on its merits, but 2) would not prejudice the party that
obtained the admissions in its presentation of the case.
American Auto, 930 F.2d at 1119 (citations omitted); FED. R. CIV.
P. 36(b). Even when these two factors are established, a
district court still has discretion to deny a request for leave
to withdraw or amend an admission. United States v. Kasuboski,
834 F.2d 1345, 1350 n. 7 (7th Cir. 1987) (“[R]ule 36(b) allows
withdrawal of admissions if certain conditions are met and the
district court, in its discretion, permits the withdrawal.”);
Donovan v. Carls Drug Co., Inc., 703 F.2d 650, 652 (2d Cir. 1983)
(“Because the language of [Rule 36(b)] is permissive, the court
is not required to make an exception to Rule 36 even if both the
merits and the prejudice issues cut in favor of the party seeking
exception to the rule.”). Like other discovery rulings, we
review rulings granting or denying leave to withdraw or amend
Rule 36 admissions for abuse of discretion. American Auto, 930
F.2d at 1119.
Carney does not dispute that he failed to respond to the
IRS’s requests for admission. Instead, he first argues that he
and the IRS entered into informal stipulations pursuant to Rule
29 according to which he had 10 days to respond to the requests
for admission from the date that the IRS complied with its
discovery obligations to him. This argument is without merit
9
because Carney fails to support his Rule 29 argument by
identifying a written stipulation agreement altering the 30-day
time limit for replying to the IRS’s discovery requests. FED. R.
CIV. P. 29(a) (requiring “written stipulation” for extension of
response periods provided for in the rules of procedure).
Alternatively, Carney argues that the bankruptcy court
should have allowed him to file responses to the IRS’s requests
for admission out of time. This argument fails because Carney
never filed a Rule 36(b) motion requesting leave to amend the
admissions in the bankruptcy court. Rather than move the court
for permission to withdraw the admissions prior to or
concurrently with the IRS’s motion for summary judgment in
accordance with the Rule 36(b), Carney made no effort to address
the effect of the default admissions. He cannot make such a
motion for the first time on appeal. See Stults v. Conoco, Inc.,
76 F.3d 651, 657 (5th Cir. 1996); Wright v. Hartford Acc. &
Indem. Co., 580 F.2d 809, 810 (5th Cir. 1978) (“It is a well-
accepted rule that an appellate court will not review actions of
omission or commission by a trial court unless the defendant
makes known to the court the action which he desires the court to
take or his objection to the action taken by the court and the
grounds therefor.")(quotations omitted). Even if we were to
construe Carney’s motion to compel as requesting the bankruptcy
10
court for leave to withdraw the deemed admissions, he has not
convinced the Court that the district court’s denial of such a
request would have constituted an abuse of discretion.5
Federal Rule of Civil Procedure 56(c) specifies that
“admissions on file” can be an appropriate basis for granting
summary judgment. FED. R. CIV. PROC. 56(c). Since Rule 36
admissions, whether express or by default, are conclusive as to
the matters admitted, they cannot be overcome at the summary
judgement stage by contradictory affidavit testimony or other
evidence in the summary judgment record. Dukes v. South Carolina
Ins. Co., 770 F.2d 545, 548-49 (5th Cir. 1985); Kasuboski, 834
F.2d at 1350. See also American Auto, 930 F.2d at 1119 (default
admissions cannot be overcome by conflicting trial testimony).6
5
In Dukes, we affirmed a district court’s decision to strike out
of time responses to a Rule 36 request for admissions based on
the court’s findings that the plaintiffs had been “evasive and
dilatory throughout the litigation.” Dukes, 770 F.2d at 549.
Though never asked by Carney for leave to file out of time
responses, the bankruptcy court’s opinion reflects its general
impression that Carney had not been diligent during the discovery
phase of the case and had made his motion to compel “to distract
the Court’s attention from the summary judgment motion.” This
language in the bankruptcy court’s opinion suggests that it would
have had a basis to deny a request for leave to file amended
responses, had it been asked to do so.
6
Various federal courts from around the country have relied on
default admissions to support a grant of summary judgment. See,
e.g., United States v. 2204 Barbara Lane, 960 F.2d 126, 129 (11th
Cir. 1992); Hulsey v. State of Texas, 929 F.2d 168, 171 (5th Cir.
1991); Stubbs, 797 F.2d at 938 (11th Cir. 1986); Campbell v.
11
Instead, the proper course for a litigant that wishes to avoid
the consequences of failing to timely respond to Rule 36 requests
for admission is to move the court to amend or withdraw the
default admissions in accordance with the standard outlined in
Rule 36(b).
Carney did not avail himself of the procedural mechanism for
attempting to avoid the effect of his default. Consequently,
application of this Court’s precedent applying the plain language
of Rule 36 compels us to conclude, on the record before us, that
the validity of the tax deficiencies stated in the IRS’s proof of
claim has been conclusively established. We note that other
courts have reached similar results in tax cases.7 Moreover,
Spectrum Automation Co., 601 F.2d 246, 253 (6th Cir.1979);
Chicago Dist. Council of Carpenters Pension Fund v. P.M.Q.T.,
169 F.R.D. 336, 341 (N.D. Ill. 1996); Wallace v. Best Western
Northeast, 183 F.R.D. 199, 202-3 (S.D. Miss. 1995); Cereghino v.
Boeing Co., 873 F.Supp 398, 401 (D. Or. 1994); Gardner v. Borden,
Inc., 110 F.R.D. 696, 697 (S.D. W.Va. 1986); In re Niswonger, 116
B.R. 562, 565 (Bankr. S.D. Ohio 1990); In re Sweeten, 56 B.R.
675, 677 (Bankr. E.D. Pa. 1986) (all noting that Rule 36 allows
party to seek admissions as to matters dispositive of a case and
granting summary judgment on basis of deemed admissions).
7
See Stubbs, 797 F.2d at 938 (affirming grant of summary judgment
against taxpayer on challenge to tax obligations because “facts
deemed admitted by [the plaintiff] established his liability” for
the asserted deficiencies and penalties); National Advertising
Co., Inc. v. Dick, 640 F. Supp 1474, 1475 (S.D. Ind. 1986)
(plaintiff’s failure to respond to IRS’s requests for admission
supported summary judgment for IRS as to IRS’s ability to levy on
certain funds to satisfy settled tax obligation); United States
v. DiFonzo, 654 F. Supp. 263, 264 (D. Mass. 1986) (granting
12
this Court has affirmed a grant of summary judgment based on
default admissions coupled with a district court’s denial of a
request to withdraw those admissions. See Dukes, 770 F.2d at
548. Carney’s failure to move the bankruptcy court to withdraw
his admission prior to or concurrently with the IRS’s motion for
summary judgment simply compels affirmance of the grant of
summary judgment. Like the Seventh Circuit,
We recognize the potential harshness of this result.
The failure to respond to admissions can effectively
deprive a party of the opportunity to contest the
merits of a case. This result, however, is necessary
to insure the orderly disposition of cases; parties to
a lawsuit must comply with the rules of procedure. In
addition, the harshness is tempered by the availability
of the motion to withdraw admissions, a procedure which
[Carney] did not employ.
Kasuboski, 834 F.2d 1345.
Because of Carney’s default admissions, we need not explore
in detail the bankruptcy court’s alternative holding that summary
judgement was appropriate based on the absence of genuine
material fact.8 Similarly, we need not address Carney’s argument
summary judgment for IRS after taxpayers were deemed to have
admitted validity of notices of assessments and demands for
payment pursuant to Rule 36). See also Alexander v. C.I.R., 926
F.2d 197, 197 (2d Cir. 1991) (affirming grant of summary judgment
based on default admissions of taxpayer’s liability pursuant to
Tax Court Rule 90(c)).
8
The bankruptcy court rejected Carney’s affidavit testimony as
conclusory, and thus determined that Carney had presented “no
13
on appeal that summary judgment should have been deferred to
allow more discovery, since the deemed admission is conclusive as
to the central factual issue in his case.9 Finally, the
discovery issues that form the crux of Carney’s argument on
appeal are irrelevant since additional discovery could not alter
our resolution of the summary judgment against him.10
competent summary judgment evidence” supporting his claims to the
deductions and credits. Because Carney’s affidavit contains
specific factual allegations supporting its conclusions, we would
have had reservations dismissing it simply as conclusory. See
Rushing v. Kansas City Southern Ry. Co., 185 F.3d 496, 513 (5th
Cir. 1999) (en banc) (distinguishing conclusory statements from
conclusions based on specific facts). For example, Carney’s
affidavit specifies that the Cinema Partnerships acquired
specific films for distribution using cash and recourse
promissory notes. The affidavit testimony also indicates that
partners assumed pro rata liability in bank debt that was used to
market films. Nevertheless, because of Carney’s lack of
diligence in responding to the IRS’s request for admission we
cannot reach these issues.
9
We note, however, that Carney again failed to properly raise
this issue before the bankruptcy court by filing a Rule 56(f)
motion and explaining specifically how additional discovery would
aid his attempt to respond to the IRS’s motion for summary
judgment. See Robbins v. Amoco Prod. Co., 952 F.2d 901, 907 (5th
Cir. 1992) (requiring Rule 56(f) motion that specifically
demonstrates how additional discovery will establish a genuine
issue of material fact). So long as the default admissions
remain in the record, no amount of additional discovery could
overcome their effect.
10
Carney argues that entry of testimony regarding the facts
surrounding a state court contempt order was error, since the
order was vacated on appeal to the Texas Supreme Court. See Ex
parte Carney, 903 S.W.2d 345 (Tex. 1995). This Court previously
held that introduction of the contempt order prejudiced Carney’s
substantial rights in an unrelated criminal proceeding. See
14
CONCLUSION
For our litigation system to work effectively, litigants
must comply with the Federal Rules of Civil Procedure. Carney’s
plight in this case exemplifies how repeated failures to do so
ultimately preclude a party from presenting the merits of his
case. Carney complains that the bankruptcy court should not have
rendered summary judgment based on a default admission, but he
never moved the court to withdraw the admission. Similarly,
Carney argues that the court should have deferred granting
summary judgment to allow for more discovery, but he filed only a
motion to compel discovery at the same time as his reply to the
IRS’s motion for summary judgment, not a Rule 56(f) motion as
required in this Circuit. Carney’s pattern of non-responsiveness
to the mandates of our rules of procedure require affirmance of
the summary judgment against him.
United States v. Fisher, 106 F.3d 622 (5th Cir. 1997), abrogated
in part by Ohler v. United States, 529 U.S. 753, 120 S.Ct. 1851
(2000). Neither the contempt conviction nor this Court’s
reversal of Carney’s criminal conviction have any relevance to
the merits of this tax case. We need not reach Carney’s
evidentiary complaints in so far as they relate to the bankruptcy
court’s ruling on his motion to compel, since further discovery
could not have altered our resolution of this case. We note,
however, that it is apparent from the record that the bankruptcy
judge recognized that the state contempt conviction had been
overturned and that this Court had overturned Carney’s federal
criminal conviction.
15
DUPLANTIER, District Judge, Dissenting:
I respectfully dissent. The majority opinion affirms the
summary judgment entered against plaintiff on the sole basis that
plaintiff did not timely file a denial of the following request
for admission: "You owe the taxes reflected on the Proof of Claim
attached hereto as Government Exhibit 1."
Rule 36(a) of the Federal Rules of Civil Procedure permits
the service by one party upon the other of a "written request for
the admission ... of the truth of any matters within the scope of
Rule 26(b)(1)11 set forth in the request that relate to
statements or opinions of fact or of the application of law to
fact . . . ." Whatever "any matters . . . that relate to
statements or opinions of fact or of the application of law to
fact" may mean, it is beyond the intent of the Rule to
countenance a request for admission such as the one by the
I.R.S., which can be paraphrased: "Admit that we win the case."
Clearly, Rule 36 can be used to request admissions of fact
which effectively dispose of all of the issues in a case, with
the result that the propounding party would be entitled to
11
Rule 26(b)(1) permits discovery regarding any matter relevant to the claim or defense of any party.
16
summary judgment in the absence of a denial. But the request at
issue was not that plaintiff admit any facts, but that he admit
that he owed the taxes which in his complaint he denied owing.
Clearly, Carney displayed a complete lack of diligence in
failing to respond to the request that he admit that he owed the
taxes at issue and in failing to move to withdraw the admission
pursuant to Rule 36(b). Such conduct on the part of an attorney
is not to be condoned. However, Carney made it clear to the
trial court throughout the proceedings that he never intended to
give up his claim that the income tax deductions disallowed by
the I.R.S. were in fact genuine and lawful. Indeed, as foot-
noted by the majority, the court had before it Carney's affidavit
containing specific factual allegations to support his contention
that the partnerships were not merely sham tax shelters but
instead were operating entities. Had Carney been given the
opportunity to do so and had he succeeded in proving those
allegations he likely would have obtained the judgment he sought.
Under such circumstances, dismissal of his suit is a draconian
penalty for failure to file another denial that he owed the
taxes.
Plaintiff's various other written submissions pending at the
time summary judgment was entered should have been construed as a
request to withdraw the deemed admission that his claim lacked
17
merit. His affidavit evidence submitted in response to the
motion for summary judgment created genuine issues of material
fact sufficient to defeat that motion. I would reverse the
summary judgment and remand.
18