United States v. Austin, No. 17-6024 (8th Cir. 2018)Annotate this Case
At issue in this case was whether substantial evidence was presented in support of the objection as a matter of law sufficient to rebut the Internal Revenue Service’s (“IRS”) proof of claim. Debtors-appellees Scott and Anna Austin filed a voluntary petition under Chapter 13 of the Bankruptcy Code with the Bankruptcy Court for the Eastern District of Missouri in 2014. In their schedules, the Austins listed two pending worker’s compensation claims as contingent and unliquidated exempt property. These claims were valued at $0.00 or an “unknown value.” The Austins listed the IRS as a secured creditor. The IRS filed proof of claim no. 5-1, asserting in part a secured claim as a result of a tax lien. The Austins objected to the amount of the IRS’s priority claim (“January Objection”), arguing that no value should be attributable to their worker’s compensation claims in determining the secured portion of the IRS’s claim. They also argued, in the alternative, that since there were neither settlement offers nor a basis to determine the value of the worker’s compensation claims, the present value of the worker’s compensation claims should be $0. The Bankruptcy Court overruled the Austins’ January Objection, finding they failed to meet their burden to produce substantial evidence to rebut the IRS’s claim. The Bankruptcy Court disagreed the worker’s compensation claims had no value. In the meantime, the Austins negotiated a settlement of the worker’s compensation claims for $21,448.80. After attorneys’ fees, the Austins received a net settlement of $15,661.60. The IRS learned of the settlement, and filed an amended claim, No. 5-3, which included as part of its secured claim the amount of $15,661.60 for the value of the settlement. The Austins again objected to the IRS’s claim, filing an affidavit their worker’s compensation attorney, who opined that the worker’s compensation claims had a “nuisance” value of $3,000.00 on the petition date. The IRS argued that the affidavit was not substantial evidence sufficient to overcome the prima facie validity of the IRS’s claim. The Bankruptcy Court ruled that the affidavit was “substantial evidence” of the value of the claims, sufficient to rebut the prima facie validity of the IRS’ claim. The Bankruptcy Court therefore sustained the Austins’ objection and valued the worker’s compensation claims at $3,000, and reduced the IRS’s secured claim by $12,661.00. Based on its de novo review of the record, the Bankruptcy Appellate Panel found the Austins failed to present substantial evidence sufficient to overcome the presumption of the validity and amount of the IRS’s proof of claim. Therefore, their objection to claim should have been overruled.