Bankr. Case No. 09 B 14301
The opinion of the court was delivered by: Joan Humphrey Lefkow United States District Judge
This appeal is from an interlocutory order of the bankruptcy court denying the motion of the United States to dismiss Adversary Proceeding No. 09 A 621 brought by Jeffery L. Hinton, the debtor in Bankruptcy Case No. 09 B 14301. The debtor filed the adversary proceeding on July 23, 2009 to obtain a determination that a tax liability owed to the Internal Revenue Service for the years 1996 through 2005 was not excepted from discharge under § 523(a)(1) of the Bankruptcy Code.*fn1 The United States (herein "the IRS") moved to dismiss for lack of jurisdiction, arguing that there is no case or controversy permitting the court to assume jurisdiction or, alternatively, if the court has jurisdiction, it should abstain for prudential reasons. The bankruptcy court denied the motion on October 9, 2009. The IRS timely moved for leave to appeal pursuant to 28 U.S.C. § 158(a)(3). This court granted leave to appeal (Dkt. No. 7).
The bankruptcy court's subject matter jurisdiction is received from the district court,*fn2 whose jurisdiction is conferred by 28 U.S.C. § 1334(a). This court reviews appeals from the bankruptcy court as authorized at 28 U.S.C. §§ 158(a). Appellate review of a bankruptcy court's determination of jurisdiction is a question of law subject to de novo review. See Matter of FedPak Sys., Inc., 80 F.3d 207, 211(7th Cir. 1996) ("Whether FedPak had standing in the bankruptcy court is a question of federal statutory and constitutional law that we review de novo.").
Hinton petitioned for relief under chapter 7 of the Bankruptcy Code on April 22, 2009. His schedule of liabilities included federal tax obligations for 1996 through 2006, and 2008, amounting to approximately $33,000.00. On June 22, 2009, the trustee filed a report of no assets. No claims were filed or administered. The debtor was discharged August 17, 2009. Promptly thereafter, the IRS filed Certificates of Release of Federal Tax Lien for the years 1996 through 2004, inclusive (as well as for all prior years). The IRS had filed no tax lien respecting the year 2005, so no notice of release of a lien was required, leaving Hinton, irrespective of the discharge, with a zero balance on the IRS's books and no present or known prospective threat of collection of any of the tax liability.
Hinton's complaint alleges that all required returns had been timely filed and the liability had been listed on his bankruptcy schedules. Because no return was fraudulent, nor had Hinton willfully attempted to evade the taxes, see § 523(a)(1)(C), he alleged, the debt was dischargeable under § 523(a)(1). The IRS agreed to stipulate that the debt was not excepted from discharge under § 523(a)(1)(A) and (B) but reserved the right to rely on subsection (C) if it later discovered evidence that plaintiff had willfully attempted to evade or defeat his tax liability.*fn4
Representing that it had no facts indicating that the debt is excepted from discharge, that it would affirmatively abate the tax upon the debtor's discharge, and that it had no present intention of investigating the debtor concerning the liability, the IRS moved to dismiss for lack of jurisdiction, arguing that the case does not present a case or controversy, a requirement imposed by Article III, section 2 of the Constitution. Alternatively, the IRS argued, if a case or controversy exists, the court should for prudential reasons decline to exercise jurisdiction for lack of "ripeness." Hinton characterized the issue as one of standing or ripeness; in either event, he contended he has a real and personal stake in the litigation that would justify exercise of the court's remedial powers on his behalf. Without a judgment that the debt is dischargeable, he argues, the debt will hang over his head, and if the IRS should seek collection in the future, he may incur further costs associated with reopening the proceeding, evidence would be stale or inaccessible, and his "fresh start" could be nullified.
The bankruptcy judge denied the motion to dismiss, reasoning that inasmuch as the IRS had taken action prepetition to collect from Hinton (by sending a prepetition demand for payment), and the tax liability was Hinton's primary reason for filing the petition, a justiciable controversy existed.
Jurisdiction depends on the facts at the time the complaint is filed, not on subsequent events. Doctors Nursing & Rehab. Ctr. v. Sebelius, 613 F.3d 672, 677 (7th Cir. 2010).*fn5
Whether characterized as case or controversy, standing, or ripeness, the issue is one of justiciability. Justiciability, as Justice Frankfurter described it, is "not a legal concept with a fixed content or suspectible of scientific verification. Its utilization is the resultant of many subtle pressures, including the appropriateness of the issues for decision . . . and the actual hardship to the litigants of denying them the relief sought." Poe v. Ullman, 367 U.S. 497, 508-09, 81 S. Ct. 1752, 6 L. Ed. 2d 989 (1961). If no actual controversy exists between the parties regarding the subject on which declaratory judgment is sought, the court lacks subject matter jurisdiction. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-40, 57 S. Ct. 461, 81 L. Ed. 617 (1937). The boundary of jurisdiction under the Declaratory Judgment Act is where "the facts alleged, under all the circumstances, show that there is a substantial controversy between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127, 127 S. Ct. 764, 166 L. Ed. 2d 604 (2007) (quoting Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, 61 S. Ct. 510, 85 L. Ed. 826 (1941)). A declaratory judgment "may not be made the medium for securing an advisory opinion in a controversy which has not arisen." Coffman v. Breeze Corp., 323 U.S. 316, 324, 65 S. Ct. 298, 89 L. Ed. 264 (1945). Furthermore, even if a justiciable controversy has been shown to exist, federal courts have discretion to decline to exercise their jurisdiction. Int'l Harvester Co. v. Deere & Co., 623 F.2d 1207, 1217 (7th Cir. 1980). The declaratory plaintiff bears the burden to establish, by a preponderance of the evidence, that the two-part test for an actual controversy has been met. See McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189, 56 S. Ct. 780, 80 L. Ed. 1135 (1936)("[T]he court may demand that the party alleging jurisdiction justify his allegations by a preponderance of evidence.").
Similarly, standing requires (1) an injury in fact, (2) a causal connection between the injury and the conduct complained of, and (3) a likelihood that the injury will be redressed by a favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992). An injury in fact is "an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical." Id. at 560 (citations omitted) (internal quotation marks omitted). A particularized injury is one affecting the plaintiff in a "personal and individual way." Id. at 560 n.1. While a plaintiff's injury may turn "on the nature and source of the claim asserted," Warth v. Seldin, 422 U.S. 490, ...