IN RE LABATO, (Bankr.M.D.Fla. 2003)

KAREN JENNEMANN, Bankruptcy Judge

This case came on for hearing on June 17, 2003, on the debtor's Objection to the Claim filed by the United States of America (Doc. No. 24), the Response filed by the United States (Doc. No. 26A), the Motion by the United States of America for Summary Judgment Regarding Debtor's Objection to Claim (Doc. Nos. 41 and 43) filed by the Internal Revenue Service ("Government") on behalf of the United States, and the debtor's Objection to the United States of America's Motion for Summary Judgment (Doc. No. 42 and 49).

The Government claims that Ms. Labato has unpaid income tax liabilities for the tax years 1990, 1992, 1995, and 1996. In her Objection to the Claim, Ms. Labato argues that the amounts allegedly owed are incorrect. In response, the Government argues in its Motion for Summary Judgment that res judicata applies. The Government's tax liability against Ms. Labato already has been determined by the District Court and Tax Court in actions in which she actively participated. She should be precluded from further challenging her tax liabilities.

Since the Government filed its proof of claim, Ms. Labato has satisfied in full her unpaid income tax liability for the 1996 tax year. The 1996 tax year is no longer at issue. Accordingly, this opinion addresses only Ms. Labato's income tax liability for the tax years 1990, 1992, and 1995. The amount of tax owed by Ms. Labato for the 1990 and 1995 tax years is relatively straightforward and will be discussed first.

The United States Tax Court previously issued opinions on Ms. Labato's tax liability for 1990 and 1995, the details of which are largely irrelevant. Subsequent to these decisions, Ms. Labato has made some payments, and the Government had further adjusted her liability. For 1990, Ms. Labato currently has a remaining federal tax liability of $545.46. For 1995, Ms. Labato currently has a remaining federal tax liability of $851.20.

The amount of Ms. Labato's liability for the 1992 tax year is slightly more complicated. On July 10, 1992, Ms. Labato sold approximately 160 acres of land in Woodstown, New Jersey, for $3,140,022 (Doc. No. 41, Ex. No. 4). Ms. Labato realized a $3,070,022 capital gain from this sale. Allegedly unaware that she was responsible for paying a federal income tax on the capital gain, Ms. Labato used the a portion of the proceeds to purchase a $500,000 home in St. Cloud, Florida, and a $62,145.24 home in Cocoa, Florida. Upon the sale of her New Jersey home, Ms. Labato moved into the home she purchased in St. Cloud, Florida. She transferred title to the home in Cocoa to her daughter.

Because the debtor failed to pay taxes on the capital gain, on February 1, 1995, the Government made a jeopardy assessment of $947,289.12 against Ms. Labato for the tax year 1992. In conjunction with this assessment, on March 29, 1995, the Government sent a Notice of Deficiency by certified mail to Ms. Labato informing her that the Government had assessed additional income tax liabilities for the tax year 1992, and, if Ms. Labato did not object to the amount by a certain date, the assessment would be deemed proper and owing.

A taxpayer may petition the United States Tax Court to challenge the amount owed, if the taxpayer has an objection.

Ms. Labato never responded to the notice. On July 17, 1997, the Government filed suit in District Court in the Middle District of Florida against Ms. Labato. The complaint sought a judgment against Ms. Labato for her 1992 federal income tax liability, to set aside Ms. Labato's conveyance of the Cocoa property to her daughter as a fraudulent transfer, and to foreclose upon the transferred property (Doc. No. 41, Ex. No. 4).

The case is titled United States of America v. Labato (Case No. 6:97-CV-900-orl-28JGG).

The parties filed cross motions for summary judgment. In her motion, Ms. Labato argued that the assessment of her 1992 income tax liabilities was defective because she never received a deficiency notice and was denied her right to petition the United States Tax Court to challenge the amount allegedly owed. In its motion, the Government argued that Ms. Labato's asserted failure to actually receive the deficiency notice did not invalidate the tax assessment because the Government is only responsible for mailing the notice to Ms. Labato, with which the Government complied.

The District Court agreed with the Government, and on May 29, 1998, denied Ms. Labato's motion for summary judgment and granted the Government's motion. In its order, the District Court specifically held that mailing the deficiency notice to Ms. Labato was effective to assess the income tax liability, even though Ms. Labato may not have actually received the notice. The District Court upheld the assessment and found that Ms. Labato was indebted to the United States for unpaid income tax liabilities for the year 1992 in the amount of $947,289.12, plus interest and penalties. Additionally, the District Court found that Ms. Labato fraudulently transferred the Cocoa property to her daughter and ordered the foreclosure of that property, directing the proceeds to be used to offset Ms. Labato's 1992 tax liability.

On August 12, 1998, the property was sold for $42,000 to the highest bidder. Before the sale was confirmed, however, Ms. Labato filed an emergency motion to stay the transfer of the Cocoa property. The confirmation motion was heard on November 17, 1998, at which time the District Court found that a factual dispute existed regarding whether an alleged scrivener's error occurred when the property was initially placed in Ms. Labato's name rather than her daughter's name. The District Court apparently was reconsidering its order allowing the foreclosure to proceed.

Before the District Court could rule, on December 28, 2000, Ms. Labato filed this Chapter 7 case (Doc. No. 1). The bankruptcy petition and the automatic stay prevented the District Court from finalizing its decision On February 14, 2001, the Government filed in this Chapter 7 case a proof of claim in the total amount of $1,389,931 for unpaid income tax liabilities. Ms. Labato then filed her objection to the Government's claim (Doc. No. 24). The Government also filed a Motion for Relief from Stay (Doc. No. 10) which this Court granted (Doc. No. 17) permitting the Government to continue with the proceedings before the District Court regarding Ms. Labato's income tax liabilities for the 1992 tax year.

The proceedings before the District Court finally concluded on June 27, 2002, with the entry of an order again denying Ms. Labato's motion for summary judgment based on her alleged failure to receive a deficiency notice and finally granting the Government's motion on this and all other issues. (Doc. No. 41 Ex. No. 4). Again, the District Court held that mailing the deficiency notice to Ms. Labato was effective to assess the amount of income tax liabilities owed to the Government even though Ms. Labato may not have actually received the notice. The District Court determined that Ms. Labato was indebted for unpaid income tax liabilities for the 1992 tax year in the amount of $1,377,706.93, including interest and penalties, as assessed by the Government. Additionally, the District Court found that Ms. Labato fraudulently transferred the Cocoa property to her daughter and again ordered the foreclosure of that property. In accordance with the order, the Cocoa property later was sold for $46,613.59.

Upon the completion of these proceedings before the District Court, the Government then filed its Motion for Summary Judgment (Doc. No. 41) with this Court on the debtor's Objection to Claim. In its motion, the Government argues that a court of competent jurisdiction has determined Ms. Labato's income tax liability for 1992, and relitigation of this liability is barred by the doctrine of res judicata. The Government claims, in its Third Supplement to the Motion for Summary Judgment (Doc. No. 56), that Ms. Labato owes the United States $1,377,706.93 less a $1,931.69 overpayment of the debtor's individual income tax liability for the year 1991 and less the distribution from the sale of the Cocoa property in the amount of $46,613.59. Therefore, the total amount due by Ms. Labato for the 1992 tax year is $1,329,161.65.

In response (Doc. No. 49), Ms. Labato does not address whether res judicata applies or not. Instead, Ms. Labato continues to argue that the Government's claim is invalid because she failed to receive the notice of deficiency for the 1992 tax year assessing the amount owed and, therefore, was denied the opportunity to petition the United States Tax Court.

Summary judgment shall be granted "if 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 material fact and that the moving party is entitled to a judgment as a matter of law." The moving party on a motion for summary judgment bears the burden of showing that there are no genuine issues of material fact. Clark v. Coats Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991). The non-moving party opposing the motion for summary judgment may not simply rest upon mere allegations or denials of pleadings. Celotex Corp. v. Catrett, 477 U.S. 317 (1986). The non-moving party must make a sufficient showing to establish the existence of a disputed fact essential to the moving party's case, and on which the moving party will bear the burden of proof at trial. Id. The Government argues that Ms. Labato failed to meet this burden.

Fed.R.Civ.P. 56(c). Federal Rule of Civil Procedure applies to bankruptcy cases pursuant to Federal Rule of Bankruptcy Procedure 7056.

A final judgment on the merits of an action precludes the parties from relitigating issues that were or could have been raised in that action.Federated Dep't Stroes, Inc. v. Moitie, 452 U.S. 394, 398 (1981). The United States Court of Appeals for the Eleventh Circuit has synthesized the requirements of reliance on the doctrine of res judicata or claim preclusion into four necessary components:

(1) the prior decision must have been rendered by a court of competent jurisdiction;

(2) there must have been a final judgment on the merits;

(3) both cases must involve the same parties; and

(4) both cases must involve the same causes of action.

In re Piper Aircraft Crop., 244 F.3d 1289, 1296 (11th Cir. 2001) (citingIsrael Discount Bank, Ltd. V. Entin, 951 F.2d 311, 314 (11th Cir. 1992)). Even a final order on appeal is considered a final judgment for purposes of application of the doctrine of res judicata. United States v. Munsingwear, 340 U.S. 36, 38-9 (1950).

Here, the doctrine of res judicata applies. All of the factors have been met. First, the Tax Court and the District Court are courts of competent jurisdictions. Second, both cases involved the same parties. Ms. Labato and the Government were the parties involved in the cases before the District Court and this Court. Third, both cases involve the same causes of actions — Ms. Labato's federal tax liability for 1992. In the District Court proceedings, Ms. Labato argued that the assessment of her tax liability for 1992 is defective because she failed to receive a Notice of Deficiency and was unable to timely petition the Tax Court. This is the identical argument that she poses here. Fourth, after considering applicable law and making a final determination, the District Court found that although Ms. Labato may have failed to receive the Notice of Deficiency, for the purposes of assessment, actual receipt is not necessary, and Ms. Labato is precluded from challenging the amount owed. Therefore, Ms. Labato owes the Government $1,377,706.93 plus interest.

Because res judicata applies, this Court should not relitigate Ms. Labato's challenges to the Government's claims for her 1992 tax liability. The amount owed for the 1992 tax year is $1,377,706.93, plus interest, as determined by the District Court, less a $1,931.69 overpayment of income tax from the tax year 1991, and $46,613.59 from the sale of the Cocoa property. As reduced, Ms. Labato currently has a remaining 1992 federal tax liability of $1,329,161.65, plus interest.

The Court grants the Government's Motion for Summary Judgment and sustains in part and denies in part Ms. Labato's Objection. The claim of the Government is allowed as follows: (i) in the amount of $545.46 for the 1990 tax year, and (ii) in the amount of $1,329,161.65 for the 1992 tax year, (iii) in the amount of $851.20 for the 1995 tax year, all plus applicable interest, and (iv) no liability for the 1996 tax year. The claim otherwise is disallowed. A separate order consistent with this opinion shall be issued.