T.C. Memo. 2012-264
UNITED STATES TAX COURT
PAUL A. BILZERIAN AND TERRI L. STEFFEN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3648-98. Filed September 12, 2012.
Paul A. Bilzerian and Terri L. Steffen, pro sese.
Michael J. Gabor, for respondent.
MEMORANDUM OPINION
WELLS, Judge: This case is before the Court on respondent’s motion for
summary judgment pursuant to Rule 121.1 Respondent determined deficiencies,
1
Unless otherwise indicated, section references are to the Internal Revenue
Code of 1986, as amended, and Rule references are to the Tax Court Rules of
Practice and Procedure.
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[*2] an addition to tax pursuant to section 6651(a)(1), and penalties pursuant to
section 6662(a) with respect to petitioners’ Federal income tax as follows:
Addition to tax Penalty
Year Deficiency Sec. 6651(a)(1) Sec. 6662(a)
1991 $205,284 --- $41,057
1992 1,493,481 $367,660 298,696
1993 485,876 --- 97,175
After petitioners filed their petition on February 25, 1998, petitioner Terri L. Steffen
filed, on May 29, 2001, a chapter 11 bankruptcy petition in the U.S. Bankruptcy
Court for the Middle District of Florida, at case No. 01-9988-8G1 (Ms. Steffen’s
bankruptcy case). The instant case was stayed during the pendency of Ms. Steffen’s
bankruptcy case. Respondent submitted a proof of claim in Ms. Steffen’s
bankruptcy case with respect to petitioners’ joint tax liabilities for 1991, 1992, and
1993 (years in issue). After the conclusion of numerous appeals, on February 5,
2010, the U.S. Bankruptcy Court for the Middle District of Florida (bankruptcy
court) issued a final order allowing respondent’s claim with respect to Ms. Steffen’s
tax liabilities for the years in issue in the amounts as follows:
Addition to tax
Year Deficiency Sec. 6651(a)(1)
1991 $98,498 ---
1992 726,098 $181,524
1993 52,835 ---
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[*3] The issue we must decide is whether petitioners are barred by res judicata from
relitigating those tax liabilities before this Court.2
Background
The facts set forth below are based upon examination of the pleadings,
moving papers, responses, and attachments. Petitioners are husband and wife who
resided in Florida at the time they filed their petition.
The petition in the instant case was filed on February 25, 1998. On January
2, 2001, petitioner Paul A. Bilzerian filed a chapter 7 bankruptcy petition in the
bankruptcy court. On January 12, 2001, petitioners filed a notice of bankruptcy in
this Court, and on January 23, 2001, we issued an order that, pursuant to 11 U.S.C.
2
With her response to respondent’s motion for summary judgment, Ms.
Steffen also filed a motion to stay the instant proceedings until the U.S. District
Court for the District of Columbia ruled on Mr. Bilzerian’s motion under Fed R.
Civ. P. 60(b) for relief from that court’s July 19, 2001, injunction enjoining Mr.
Bilzerian and those acting in concert with him from filing
“any complaint, proceeding or motion in the United States Bankruptcy Court
for the Middle District of Florida, or from otherwise commencing or causing
the commencement of any proceedings in any court, other than in this Court
or in appeals of [this] Court’s Orders to the United States Court of Appeals
for the District of Columbia, without prior application to and approval of this
Court ....” * * *
SEC v. Bilzerian, 815 F. Supp. 2d 324, 326 (D.D.C. 2011) (quoting July 19, 2001,
injunction), aff’d, 2012 WL 1922465 (D.C. Cir. May 11, 2012). Because the
District Court for the District of Columbia has now denied Mr. Bilzerian’s motion in
that court, see id., we will deny Ms. Steffen’s motion as moot.
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[*4] sec. 362(a)(8) (2000), the proceedings in this Court be automatically stayed.
On February 9, 2001, the bankruptcy court dismissed Mr. Bilzerian’s bankruptcy
petition for cause pursuant to 11 U.S.C. sec. 707(a) (2000) on the basis of its
conclusion that, among other things, he lacked proper motives in filing his petition
and that no significant debt of his was dischargeable in bankruptcy.3 See In re
Bilzerian, 258 B.R. 850, 858 (Bankr. M.D. Fla. 2001). On May 29, 2001, Ms.
Steffen filed a chapter 11 bankruptcy petition in the same bankruptcy court.
Because of the filing of Ms. Steffen’s bankruptcy case, this Court did not allow the
instant case to go forward until December 6, 2010, after receiving notification that
the bankruptcy court had lifted the automatic stay.
General Background
A full history of petitioners’ litigation in the Federal courts would require
volumes and, in any case, is beyond the scope of the issue before us. However, we
3
The bankruptcy petition Mr. Bilzerian filed on February 9, 2001, was
actually his second bankruptcy petition. He had previously filed his first bankruptcy
petition on August 6, 1991. See Bilzerian v. SEC (In re Bilzerian), 146 B.R. 871
(Bankr. M.D. Fla. 1992). In that bankruptcy case, the bankruptcy court determined
that several of Mr. Bilzerian’s debts were not dischargeable in bankruptcy. See
SEC v. Bilzerian (In re Bilzerian), 153 F.3d 1278 (11th Cir. 1998); HSSM #7 Ltd.
P’ship v. Bilzerian (In re Bilzerian), 100 F.3d 886 (11th Cir. 1996).
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[*5] will endeavor to provide a brief summary insofar as that background is relevant
to the issue we must decide.
The saga that led petitioners to repeatedly declare bankruptcy began during
1989 when Mr. Bilzerian was convicted in the U.S. District Court for the Southern
District of New York of securities fraud, making false statements to the Securities
and Exchange Commission (SEC), and conspiracy to defraud the SEC and the
Internal Revenue Service (IRS). United States v. Bilzerian, 926 F.2d 1285 (2d Cir.
1991) (affirming conviction). Mr. Bilzerian was sentenced to four years in prison
and ordered to pay a $1.5 million fine. Id. On the basis of the same conduct that
led to Mr. Bilzerian’s criminal conviction, the SEC subsequently pursued a civil
action against him in the U.S. District Court for the District of Columbia, and in
1993, that court ordered him to disgorge profits of $33,140,787 plus interest
(disgorgement order). SEC v. Bilzerian, 814 F. Supp. 116, 124 (D.D.C. 1993). The
Court of Appeals for the District of Columbia Circuit affirmed the disgorgement
order. SEC v. Bilzerian, 29 F.3d 689 (D.C. Cir. 1994).
On the basis of Mr. Bilzerian’s failure to make any payment towards the
judgment, and, after lengthy litigation over the dischargeability of the judgment in
bankruptcy, the SEC applied for, and was granted, an order holding Mr. Bilzerian
in contempt of the disgorgement order. SEC v. Bilzerian, 112 F. Supp. 2d 12
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[*6] (D.D.C. 2000). The U.S. District Court for the District of Columbia also
established a receivership estate “for the purpose of identifying, marshalling,
receiving and liquidating his assets” to satisfy the disgorgement order. SEC v.
Bilzerian, 127 F. Supp. 2d 232, 232 (D.D.C. 2000). Mr. Bilzerian subsequently
commenced litigation in numerous other courts. See SEC v. Bilzerian, 815 F. Supp.
2d 324, 325-326 (D.D.C. 2011) (summarizing Mr. Bilzerian’s litigation in other
courts), aff’d, 2012 WL 1922465 (D.C. Cir. May 11, 2012). One of the actions he
filed was the above-mentioned bankruptcy petition that originally stayed the instant
proceedings. On February 9, 2001, the bankruptcy court dismissed Mr. Bilzerian’s
petition and concluded that the only reason he filed it was to hinder the SEC’s
collection efforts. In re Bilzerian, 258 B.R. at 858.
Ms. Steffen’s Bankruptcy Case
On May 29, 2001, Ms. Steffen filed a chapter 11 bankruptcy petition in the
bankruptcy court. See Steffen v. United States (In re Steffen), 349 B.R. 734, 736
(M.D. Fla. 2006). On November 4, 2001, the IRS filed a proof of claim with the
bankruptcy court for $5,856,992.75. Id. at 737. The proof of claim concerned
petitioners’ joint tax liabilities for their 1985, 1986,4 1991, 1992, and 1993 tax
4
In Bilzerian v. Commissioner, T.C. Memo. 2001-187, and Steffen v.
Commissioner, T.C. Memo. 2002-229, aff’d, 87 Fed. Appx. 714 (11th Cir. 2003),
(continued...)
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[*7] years. In re Steffen, 294 B.R. 388, 390 (Bankr. M.D. Fla. 2003). On February
6, 2002, Ms. Steffen filed an objection to the IRS’ proof of claim. Id.
On September 27, 2002, Mr. Bilzerian filed a document in Ms. Steffen’s
bankruptcy case entitled “Paul A. Bilzerian’s Consent To Be Bound By The
Decisions Of This Court In All Contested Matters Between The Internal Revenue
Service And The Debtor” (consent to be bound). The consent to be bound stated:
“Mr. Bilzerian hereby consents to be bound by the decisions of this Court in all
contested matters, including all adversary proceedings, between the IRS and the
Debtor. Mr. Bilzerian waives any rights that he might have to participate in any
proceedings before this Court between the IRS and the Debtor.” Mr. Bilzerian
signed the consent to be bound.
On April 18 and June 17, 2003, the bankruptcy court issued opinions setting
forth its determinations with respect to the IRS’ proof of claim. See In re Steffen,
297 B.R. 645 (Bankr. M.D. Fla. 2003); In re Steffen, 294 B.R. 388. Mr. Bilzerian
and Ms. Steffen had both testified at the evidentiary hearings, and their testimony
informed the bankruptcy court’s determinations. See In re Steffen, 297 B.R. 645,
649 (Bankr. M.D. Fla. 2003); In re Steffen, 294 B.R. at 391. On October 6, 2003,
4
(...continued)
this Court sustained respondent’s determination that petitioners were liable for
additions to tax for negligence with respect to their 1986 tax liability.
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[*8] Ms. Steffen filed a motion for reconsideration with the bankruptcy court. On
October 8, 2003, Mr. Bilzerian filed with the bankruptcy court a document entitled
“Paul A. Bilzerian’s Motion To Participate In The Hearing On The Debtor’s Motion
For Reconsideration Of Findings Of Fact, Conclusions Of Law And Memorandum
Opinion Dated April 18, 2003”. In that document, signed by Mr. Bilzerian, he
stated: “I have read * * * [Ms. Steffen’s] Motion for Reconsideration and concur in
its conclusion. Because I am bound by this Court’s decision, I respectfully request
the Court to give me the opportunity to participate in the hearing on the Motion for
Reconsideration.” In a footnote, he wrote: “I have agreed to be bound by this
Court’s decision in this matter.” Upon reconsideration, the bankruptcy court
affirmed its opinion entered on April 18, 2003. In re Steffen, 305 B.R. 369 (Bankr.
M.D. Fla. 2004).
Ms. Steffen appealed the bankruptcy court’s opinions to the U.S. District
Court for the Middle District of Florida, and, on April 28, 2009, the District Court
issued an order affirming the bankruptcy court on all issues that it had resolved in
favor of respondent and reversing the bankruptcy court on two issues it had
resolved in Ms. Steffen’s favor. Steffen v. United States (In re Steffen), 429 B.R.
32 (M.D. Fla. 2009). Ms. Steffen appealed the District Court’s order to the Court
of Appeals for the Eleventh Circuit, and the Court of Appeals affirmed. Steffen v.
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[*9] United States (In re Steffen), 375 Fed. Appx. 968 (11th Cir. 2010). On
February 5, 2010, the bankruptcy court issued a final order allowing the IRS’ proof
of claim, and on November 9, 2010, the bankruptcy court issued an order granting
the Government’s motion to lift the automatic stay and authorizing the IRS “to
conclude Terri L. Steffen and Paul A. Bilzerian’s Tax Court case * * * for
redetermination of their federal income taxes for 1991, 1992, and 1993 in a manner
consistent with the final order of this Court allowing the IRS claim on February 5,
2010”.
Petitioners’ Tax Court Case
After this Court issued an order, on December 6, 2010, noting that the stay
had been lifted and allowing the instant case to go forward, respondent sent
petitioners a decision document proposing to conclude this case in a manner
consistent with the bankruptcy court’s final order. Rather than sign the decision
document, petitioners requested more information from respondent with respect to
the nature of the issues in the instant case. On March 10, 2011, in response to
petitioners’ request, respondent mailed them a letter summarizing the history of
the instant case and the bankruptcy court’s determination of their tax liabilities for
the years in issue. Respondent requested that petitioners promptly sign the
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[*10] decision document or otherwise inform him of their intentions. Respondent
received no response from petitioners.
Respondent subsequently filed the instant motion for summary judgment, and
petitioners have filed responses opposing the motion for summary judgment.
Discussion
Summary judgment is intended to expedite litigation and avoid unnecessary
and expensive trials and may be granted where there is no genuine dispute as to any
material fact and a decision may be rendered as a matter of law. Rule 121(a) and
(b); Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). The moving party
bears the burden of proving that there is no genuine dispute as to any material fact,
and factual materials and inferences drawn from them are viewed in the light most
favorable to the nonmoving party. Sundstrand Corp. v. Commissioner, 98 T.C. 518,
520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994). However, where a motion for
summary judgment has been properly made and supported, the opposing party may
not rest upon mere allegations or denials in that party’s pleadings but must by
affidavits or otherwise set forth specific facts showing that there is a genuine dispute
for trial. Rule 121(d); see also Celotex Corp. v. Catrett, 477 U.S. 317 (1986); King
v. Commissioner, 87 T.C. 1213, 1217 (1986). We conclude that the instant case is
ripe for summary judgment because the material facts are not in dispute and
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[*11] the only issue we must decide is whether, on the basis of those facts,
petitioners are precluded from litigating their tax liabilities in this Court.
A bankruptcy court has jurisdiction to determine “the amount or legality of
any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not
previously assessed, whether or not paid, and whether or not contested before and
adjudicated by a judicial or administrative tribunal of competent jurisdiction.” 11
U.S.C. sec. 505(a)(1) (2006). A bankruptcy court also has jurisdiction to resolve
any objection to a claim made by a creditor. 11 U.S.C. sec. 502(b) (2006). If a
bankruptcy court renders a final judgment as to a debtor’s tax liability, res judicata
may apply to prevent the matter from being relitigated. See Fla. Peach Corp. v.
Commissioner, 90 T.C. at 681-684.
The current usage of the term “res judicata” encompasses both claim
preclusion and issue preclusion. Taylor v. Sturgell, 553 U.S. 880, 892 (2008);
Brown v. R.J. Reynolds Tobacco Co., 611 F.3d 1324, 1331-1332 (11th Cir. 2010).
Pursuant to the doctrine of claim preclusion, a final judgment in a case bars
“‘successive litigation of the very same claim, whether or not relitigation of the
claim raises the same issues as the earlier suit.’” Taylor, 553 U.S. at 892 (quoting
New Hampshire v. Maine, 532 U.S. 742, 748 (2001)). In contrast, issue
preclusion acts to foreclose “‘successive litigation of an issue of fact or law
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[*12] actually litigated and resolved in a valid court determination essential to the
prior judgment,’ even if the issue recurs in the context of a different claim.” Id.
(quoting New Hampshire v. Maine, 532 U.S. at 748-749). Issue preclusion has
also been called collateral estoppel. Id. n.5; Brown, 611 F.3d at 1332. Res
judicata serves to conserve judicial resources and avoid multiple lawsuits by
preventing parties from contesting matters that they have had a full and fair
opportunity to litigate. Taylor, 553 U.S. at 892; Montana v. United States, 440
U.S. 147, 153-154 (1979). The preclusive effect of a Federal court judgment is
determined by Federal common law. Taylor, 553 U.S. at 891.
As a general rule, a “person who was not a party to a suit * * * has not had a
‘full and fair opportunity to litigate’ the claims and issues settled in that suit.”
Id. at 892. However, the rule against nonparty preclusion is subject to six
categories of exceptions. Id. at 893. A court may apply nonparty preclusion if:
(1) the nonparty agreed to be bound by the result of litigation between other
parties; (2) a substantive legal relationship existed between the nonparty and a
party to the suit; (3) the nonparty was adequately represented by someone with the
same interests who was a party; (4) the nonparty assumed control over the
litigation in the prior suit; (5) the nonparty is acting in the current suit as a proxy
for a party to the first suit to relitigate issues; or (6) a special statutory scheme,
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[*13] such as bankruptcy, expressly foreclosed subsequent litigation by
nonlitigants. See id. at 893-895.
Respondent contends that the first exception applies to the instant case
because Mr. Bilzerian is precluded from contesting his tax liabilities in this Court on
the basis of his consent to be bound by the bankruptcy court’s determination of Ms.
Steffen’s income tax liabilities. Mr. Bilzerian contends that the first exception does
not apply because, although the consent to be bound indicates that he was willing to
be bound by the bankruptcy court’s decision, respondent never accepted his consent
to be bound and he received no consideration in exchange for his consent to be
bound. In support of his contentions, Mr. Bilzerian cited a number of cases that
establish the general proposition that a contract requires acceptance and
consideration. However, none of the cases he cited considered the issue of what
would be sufficient to constitute acceptance or consideration in a case where a party
agrees to be bound by the result of litigation between two other parties.
The drafters of the Second Restatement of Judgments offered the following
comments with respect to the reasons why a nonparty who agrees to be bound by
the determination of issues is so bound:
A person having a claim or defense paralleling or related to other litigation
may agree that the outcome of the other litigation will be determinative of the
issues in his case. The motivation for such an agreement may be to
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[*14] realize economy and convenience, as where two or more persons have
parallel claims against a third. * * *
An agreement to be bound by the result of another action may be express; it
also may be implied from conduct and manifestations of intention. The
agreement may concern the determination of a claim, including all potential
issues therein, or may be limited to issues actually litigated. Whether there is
such an agreement, and its scope, is a matter of inference from all the
circumstances.
1 Restatement, Judgments 2d, sec. 40 cmt. a (1982). Although the preferred means
for establishing an agreement to be bound are formal joinder or a written stipulation
signed by both parties, courts have held that an agreement to be bound may be
inferred even without such a stipulation or joinder. See Dahar v. Raytheon Co. (In
re Navigation Tech. Corp.), 880 F.2d 1491 (1st Cir. 1989); Council Bros., Inc. v.
Ray Burner Co., 473 F.2d 400 (5th Cir. 1973); Cauefield v. Fid. & Cas. Co. of New
York, 378 F.2d 876 (5th Cir. 1967). The consideration for consenting to be bound
by the outcome in another case is generally the possibility of realizing “economy
and convenience” in the resolution of a common issue. 1 Restatement, supra, sec.
40 cmt. a.
In the instant case, Mr. Bilzerian is correct that there exists no written
stipulation or joinder signed by respondent. However, the consent to be bound
Mr. Bilzerian filed in the bankruptcy court in Ms. Steffen’s bankruptcy case
clearly manifests his intention to be bound by the decision of that court as to his
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[*15] tax liabilities for the years in issue. Respondent did not object to the filing of
the consent to be bound in the bankruptcy court, and, more than a year after filing
that consent, Mr. Bilzerian filed another motion confirming that he had agreed to be
bound by the bankruptcy court’s decision in Ms. Steffen’s bankruptcy case with
respect to his tax liabilities. In addition to filing documents in the bankruptcy court,
Mr. Bilzerian also testified extensively during hearings before the court in Ms.
Steffen’s bankruptcy case. From the record, it is clear that Mr. Bilzerian intended to
be bound by the bankruptcy court’s decision in Ms. Steffen’s bankruptcy case with
respect to his own Federal income tax liabilities for the years in issue. Indeed, it
appears that he acted as if he would be bound by that decision up until the
bankruptcy court issued its final order allowing the IRS’ proof of claim. Only now,
before this Court, has Mr. Bilzerian changed his position and contended that he did
not consent to be bound by the decision of the bankruptcy court.
On the basis of the foregoing, we conclude that, although there was no
written stipulation signed by both Mr. Bilzerian and respondent, Mr. Bilzerian
nonetheless agreed in writing to be bound by the outcome of the bankruptcy case
and respondent assented to his consent to be bound. Accordingly, we hold that
Mr. Bilzerian is precluded from contesting his tax liabilities for the years in issue
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[*16] before this Court. Additionally, on the basis of the bankruptcy court’s final
order in Ms. Steffen’s bankruptcy case with respect to her tax liabilities for the
years in issue, we conclude that Ms. Steffen is barred by res judicata from
relitigating those liabilities before this Court. See Fla. Peach Corp. v.
Commissioner, 90 T.C. at 682-684. Consequently, we will grant respondent’s
motion for summary judgment.
In reaching these holdings, we have considered all the parties’ arguments,
and, to the extent not addressed herein, we conclude that they are moot, irrelevant,
or without merit.
To reflect the foregoing,
An appropriate order and
decision will be entered.