Case 4:16-cv-00039-RC Document 14 Filed 05/23/16 Page 1 of 12 PageID #: 221
`
`
`** NOT FOR PRINTED PUBLICATION **
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`SHERMAN DIVISION
`
`
`CLOVIS PRINCE,
`
`Appellant,
`
`
`
`
`v.
`
`
`
`
`
`§
`§
`§
`§
`§
`§
`§
`§
`§
`
`CIVIL ACTION No. 4:16-CV-039
`
`U.S. Bankruptcy Court Case No. 09-43627
`
` AFC
`
`
`INTERNAL REVENUE SERVICE, et al.,
`
`Appellee.
`
`MEMORANDUM OPINION ON APPEAL FROM BANKRUPTCY COURT
`
`Clovis Prince, proceeding pro se, appeals a bankruptcy order dispersing $146,450 in
`
`proceeds from the sale of 318 Covington Court, Murphy, Texas 75094 that was originally
`
`designated as Mr. Prince’s homestead exemption in a 2011 order to the Internal Revenue
`
`Service. The IRS had filed a tax lien against the property prior to Mr. Prince’s bankruptcy. Mr.
`
`Prince argues multiple grounds for reversal. The court finds no error in the bankruptcy court’s
`
`rulings and affirms the judgment.
`
`I. PROCEDURAL DEFECTS
`
`
`
`First, in its brief, the IRS argues that Mr. Prince’s appeal should be dismissed since he
`
`failed to pay the required filing fee, the bankruptcy court having denied Mr. Prince’s Motion to
`
`Proceed in Forma Pauperis on appeal, and failed to designate a record for appeal pursuant to
`
`Federal Rule of Bankruptcy 8009(a). (DOC. # 12); (Bankruptcy Proceeding, 09-43627, Dkt.
`
`# 522). Mr. Prince responds by arguing that this court has previously determined he is indigent
`
`and that since that determination he has become “flat broke!” (DOC. # 13, pg. 5). Further, Mr.
`
`
`
`1
`
`

`
`Case 4:16-cv-00039-RC Document 14 Filed 05/23/16 Page 2 of 12 PageID #: 222
`
`Prince has also asked the court to give him leeway in applying the procedural rules considering
`
`he is representing himself pro se.
`
`While the court is inclined to be lenient when it comes to the filing fee, Mr. Prince has
`
`filed several pro se appeals both to this court, the Fifth Circuit, and the United States Supreme
`
`Court.1 By now, he should be well aware of the requirements he must meet for filing an appeal.
`
`The court considered allowing Mr. Prince a chance to perfect his record but found that after
`
`reviewing the arguments he submitted in his brief, his appeal is completely meritless. The court
`
`concludes that it would be more expedient and less costly to simply address Mr. Prince’s appeal
`
`on the merits without requiring Mr. Prince to designate a record. The court cites directly to the
`
`bankruptcy court’s docket when necessary.
`
`For this purpose, when the court cites to the record from another proceeding, it provides
`
`the general classification of that other proceeding, the proceeding’s cause number, and the
`
`docket number used in that proceeding. The citation form “DOC.” is used when the court is
`
`citing to its own appellate record.
`
`The court has obtained a recording of the hearing from the bankruptcy court. That audio
`
`recording has been filed on the docket sheet. After listening to the recording, the court concludes
`
`that it does not affect the outcome of Mr. Prince’s appeal. For this reason, the court has
`
`1 This is a list of just a few of Mr. Prince’s appeals:
`
`2.
`
`1. Prince v. Am. Bank of Tex., 4:11-CV-851, 2012 WL 3961218 (E.D. Tex. Sept. 10,
`2012);
`In re Prince, 548 F. App’x 262 (5th Cir. 2013), reh’g denied, 134 S. Ct. 2748
`(2014);
`3. U.S. v. Prince, 547 F. App’x 587 (5th Cir. 2013);
`4. Prince v. CMS Wireless LLC, 4:11-CV-438, 2012 WL 1015001 (E.D. Tex. Mar.
`22, 2012).
`
`2
`
`

`
`Case 4:16-cv-00039-RC Document 14 Filed 05/23/16 Page 3 of 12 PageID #: 223
`
`determined that requiring a transcript of the hearing would not be economical. The court
`
`does not reference the hearing in its Opinion.
`
`II. BACKGROUND
`
`On December 9, 2010, Mr. Prince was convicted of bank fraud, bankruptcy fraud, money
`
`laundering, and perjury. (Criminal Proceeding, 4:09-CR-161, Dkt. # 182). On March 9, 2012,
`
`Mr. Prince was sentenced to thirty years imprisonment, as well as several other concurrent prison
`
`terms. (Criminal Proceeding, 4:09-CR-161, Dkt. # 312). Mr. Prince was also ordered to pay
`
`$13,640,425.56 in restitution. (Criminal Proceeding, 4:09-CR-161, Dkt. # 312).
`
`A month prior to his criminal trial, Mr. Prince filed a petition for bankruptcy under
`
`Chapter 7 of the Bankruptcy Code, which was assigned the case number 09-43627. Michelle
`
`Chow (“Trustee”) was appointed the trustee of the bankruptcy estate. On September 1, 2010, the
`
`IRS filed its Proof of Claim in that proceeding. The IRS’s claim was based on a tax lien it had
`
`filed in September of 2008 with the Collin County Clerk. On October 13, 2010, in response to
`
`three pro se motions filed by Mr. Prince requesting sanctions, the bankruptcy court issued a
`
`vexatious litigant order prohibiting Mr. Prince from filing motions for sanctions without the
`
`court’s permission. (Bankruptcy Proceeding, 09-43627, Dkt. 142). On July 25, 2011, the
`
`bankruptcy court designated $146,450 of 318 Covington Court, Murphy, Texas 75094
`
`(“Covington Court Property”) as Mr. Prince’s homestead exemption (“the 2011 decision”).
`
`(Bankruptcy Proceeding, 09-43627, Dkt. # 249). Mr. Prince appealed the 2011 decision to this
`
`court. (Bankruptcy Proceeding, 09-43627, Dkt. # 250). On September 11, 2012, the Honorable
`
`Marcia Crone affirmed the bankruptcy court’s designation of Mr. Prince’s homestead exemption.
`
`(Bankruptcy Proceeding, 09-43627, Dkt. # 361).
`
`3
`
`

`
`Case 4:16-cv-00039-RC Document 14 Filed 05/23/16 Page 4 of 12 PageID #: 224
`
`A little over three years after the 2011decision was affirmed, the bankruptcy court
`
`ordered the Covington Court Property to be sold free and clear of all liens. (Bankruptcy
`
`Proceeding, 09-43627, Dkt. # 471). That order included a statement that the IRS’s lien on the
`
`Covington Court Property shall attach to the net proceeds of the sale as well as the $146,450 in
`
`exempt funds. (Bankruptcy Proceeding, 09-43627, Dkt. # 471). After the sale was completed,
`
`both Mr. Prince and the IRS filed motions asking the bankruptcy court to disperse the $146,450
`
`in exempt funds to them. (Bankruptcy Proceeding, 09-43627, Dkt. ## 488, 489). On December
`
`15, 2015, the bankruptcy court held a hearing on Mr. Prince’s and the IRS’s motions. On
`
`December 23, 2015, the bankruptcy court ordered that the exempt proceeds shall be dispersed to
`
`the IRS. (Bankruptcy Proceeding, 09-43627, Dkt. # 512). On December 28, 2015, Mr. Prince
`
`appealed this decision. (Bankruptcy Proceeding, 09-43627, Dkt. # 520).
`
`III. DISCUSSION
`
`A. Issues Presented
`
`Mr. Prince raises six issues on appeal:
`
`(1) Whether the IRS has waived its claim to the proceeds of the Covington Court sale by
`not taking action to enforce its lien prior to the designation of Mr. Prince’s homestead
`exemption;
`
`(2) Whether res judicata or collateral estoppel bars the IRS’s claim to the Covington
`Court sales proceeds;
`
`
`
`
`
`(3) Whether the IRS’s claim should be barred based on a $5 million tax credit allegedly
`owed to C. Prince & Associates Consulting, Inc.;
`
`(4) Whether Mr. Prince was prejudiced by the IRS’s failure to provide its exhibits to Mr.
`Prince prior to the December 15th hearing;
`
`(5) Whether the bankruptcy court abused its discretion by denying Mr. Prince’s Motion to
`Present Documentary Evidence;
`
`4
`
`

`
`Case 4:16-cv-00039-RC Document 14 Filed 05/23/16 Page 5 of 12 PageID #: 225
`
`(6) Whether the Trustee had standing to object to Mr. Prince’s request to disperse the
`Covington Court sales proceeds.
`
`B. Standard of Review
`
` The bankruptcy court’s findings of fact are reviewed for clear error, while its legal
`
`conclusions and any mixed questions of law and fact are reviewed de novo. In re Seven Seas
`
`Petroleum, Inc., 522 F.3d 575, 583 (5th Cir. 2008). Since Mr. Prince’s Motion to Present
`
`Documentary Evidence asked the bankruptcy court to consider additional evidence after making
`
`a final determination, the court reviews that Motion’s denial for an abuse of discretion. See
`
`Garcia v. Woman’s Hosp. of Tex., 97 F.3d 810, 814 (5th Cir. 1996).
`
`C. The IRS did not waive its claim to the Covington Court Proceeds.
`
`Mr. Prince argues that the IRS waived its claim to the Covington Court Proceeds because
`
`it (1) failed to timely object to Mr. Prince’s designation of Covington Court as his homestead; (2)
`
`failed to levy against the property to collect on its tax lien; and (3) failed to file an adversary
`
`proceeding.
`
`First, Mr. Prince rightly states that creditors must dispute an exemption within thirty days
`
`of the creditors meeting. In re Peres, 530 F.3d 375, 377 (5th Cir. 2008). However, at least one
`
`bankruptcy court has concluded that the IRS does not have to object to a homestead exemption
`
`designation in order to make a claim against the sale proceeds of that homestead. See In re
`
`Duncan, 406 B.R. 904, 909–10 (D. Mont. 2009). This is because the Texas homestead
`
`exemption has no effect on a federal tax lien. United States v. Rodgers, 461 U.S. 677, 700–02
`
`(1983). Further, properly filed tax liens are an express exception to the bankruptcy code’s
`
`homestead exemption. 11 U.S.C. § 522(c)(2)(B). It would be senseless to require the IRS to
`
`5
`
`

`
`Case 4:16-cv-00039-RC Document 14 Filed 05/23/16 Page 6 of 12 PageID #: 226
`
`object to a homestead exemption when that exemption has no effect on the collectability of its
`
`tax lien.
`
`Second, while federal tax liens are self-executing, the IRS is not required to levy against
`
`the property in order to enforce its tax lien. The IRS merely has to take “affirmative action” to
`
`enforce its liens. United States v. Nat’l Bank of Commerce, 472 U.S. 713, 720 (1985). Filing a
`
`Proof of Claim in a bankruptcy proceeding and moving for dispersal of the sales proceeds is
`
`certainly sufficient affirmative action, especially given the automatic stay applied to collection
`
`actions taken outside the bankruptcy proceeding. 11 U.S.C. § 362.
`
`Third, Mr. Prince makes much of the fact that the IRS did not file an adversary
`
`proceeding. It is not clear why this is important. Adversary proceedings are only required in
`
`certain circumstances. Fed. R. Bankr. P. 7001. Normally, creditors do not have to file an
`
`adversary proceeding to enforce their claims. See 11 U.S.C. § 502(a) (“A claim . . . is deemed
`
`allowed, unless a party in interest . . . objects.”). In fact, at least one court required the debtor to
`
`file an adversary proceeding in order to invalidate an IRS tax lien. In re Dunmore, 262 B.R. 85,
`
`86–87 (N.D. Cal. 2001). The best the court can tell, Mr. Prince is arguing that the IRS was
`
`required to file an adversary proceeding to contest the homestead exemption. This is unnecessary
`
`for the same reasons that it was unnecessary for the IRS to object to the homestead exemption
`
`designation.
`
`The court concludes that the bankruptcy court did not err in determining that the IRS did
`
`not waive its claim to the Covington Court sales proceeds.
`
`6
`
`

`
`Case 4:16-cv-00039-RC Document 14 Filed 05/23/16 Page 7 of 12 PageID #: 227
`
`
`D. The IRS’s claim to the proceeds is not barred by res judicata or collateral estoppel.
`
`Mr. Prince argues that the 2011 decision designating his homestead exemption bars the
`
`
`
`IRS’s claim under the doctrines of res judicata and collateral estoppel.2 In re Prince, 09-43627,
`
`2011 Bankr. LEXIS 5511 (E.D. Tex. July 25, 2011).
`
`
`
`The elements of res judicata are: (1) “the parties to both actions are identical (or at least
`
`in privity)”; (2) “the judgment in the first action is rendered by a court of competent
`
`jurisdiction”; (3) “the first action concluded with a final judgment on the merits”; and (4) “the
`
`same claim or cause of action is involved in both suits.” Ellis v. Amex Life Ins., 211 F.3d 935,
`
`937 (5th Cir. 2000).
`
`
`
`The requirements of collateral estoppel are: “(1) the identical issue was previously
`
`adjudicated; (2) the issue was actually litigated; and (3) the previous determination was
`
`necessary to the decision.” Bradberry v. Jefferson Cty., Tex., 732 F.3d 540, 548 (5th Cir. 2013)
`
`(quoting Pace v. Bogalusa City Sch. Bd., 403 F.3d 272, 290 (5th Cir. 2005)).
`
`
`
`The court does not analyze each element of res judicata and collateral estoppel because it
`
`is clear that the 2011 decision did not address the same issue or claim. The bankruptcy court’s
`
`2011 decision only determined that Mr. Prince could make a claim for $146,450 out of the sale
`
`proceeds from the Covington Court Property due to his homestead exemption. See In re Prince,
`
`2011 Bankr. LEXIS 5511, at *9–11. Once the property was sold, Mr. Prince asserted that claim.
`
`The IRS, however, claimed the same proceeds pursuant to its tax lien on the property. As
`
`previously stated, homestead exemptions do not bar IRS tax liens. 11 U.S.C. § 522(c)(2)(B);
`
`
`
`2 Mr. Prince merely lists collateral estoppel in the title of one of his sections and does not
`give any discussion as to its applicability. However, since Mr. Prince is a pro se appellant, the
`court addresses the collateral estoppel issue as well, ultimately concluding that it is inapplicable.
`7
`
`
`
`

`
`Case 4:16-cv-00039-RC Document 14 Filed 05/23/16 Page 8 of 12 PageID #: 228
`
`
`Rodgers, 461 U.S. at 700–02. Based on this law, the bankruptcy court concluded that the IRS’s
`
`claim trumped Mr. Prince’s homestead exemption. This was not a redetermination of whether
`
`Mr. Prince had a valid homestead exemption but was instead a judgment that the IRS was
`
`entitled to the sales proceeds in spite of Mr. Prince’s homestead exemption. These are separate
`
`issues, and neither res judicata nor collateral estoppel applies.
`
`
`
`The bankruptcy court correctly concluded that the IRS’s claim was not barred by res
`
`judicata or collateral estoppel.
`
`E. The IRS’s claim was not barred by the $5 million tax credit owed to C. Prince &
`Associates Consulting, Inc.
`
`Mr. Prince’s sole argument as to why he did not owe any taxes to the IRS rests on an
`
`
`
`alleged $5 million tax credit for bad debt losses. Mr. Prince admits that this credit is owed to C.
`
`Prince & Associates Consulting, Inc., which is allegedly 100% owned by Mr. Prince and the
`
`subject of a separate bankruptcy proceeding consolidated with the underlying proceeding. (DOC.
`
`# 11, pgs. 24–25). This credit was based on bad debt losses that C. Prince & Associates suffered
`
`in past tax years. (Bankruptcy Proceeding, 09-43627, Dkt. # 519, pg. 10). A tax court addressed
`
`this very same question and concluded that such credits may only be applied by the corporation
`
`that suffered the losses and cannot be applied by the corporation’s owners. See Sundby v.
`
`Comm’r of Internal Revenue, 86 T.C.M. (CCH) 58, 2003 WL 21638265, at *4 (T.C. 2003). This
`
`makes sense, considering the differences in the laws governing taxation of individuals and
`
`corporations. Generally, a proof of claim is considered prima facie valid, and the debtor has the
`
`burden of rebutting its validity. In re Jacobson, 362 F. App’x 413, 415 (5th Cir. 2010). Since Mr.
`
`Prince’s only evidence rebutting the validity of the IRS’s claim was the alleged $5 million tax
`
`
`
`8
`
`

`
`Case 4:16-cv-00039-RC Document 14 Filed 05/23/16 Page 9 of 12 PageID #: 229
`
`
`credit, the bankruptcy court did not err in concluding that the IRS had an allowed secured claim
`
`against the proceeds of the Covington Court sale.
`
`F. Mr. Prince was not prejudiced by the IRS’s failure to produce its exhibits prior to the
`December 15th Hearing.
`
`Mr. Prince next argues that the IRS did not provide him with copies of the exhibits it used
`
`
`
`at the December 15th hearing. The first exhibit presented by the IRS was a copy of its Proof of
`
`Claim, which was filed as Claim 5-1 in the bankruptcy action. (DOC. # 11-2). The second
`
`exhibit consists of two pages that appear to lay out the amount of taxes personally owed by Mr.
`
`Prince. (DOC. # 11-3). Mr. Prince alleges that the failure to produce these exhibits prevented
`
`him from being able to present rebuttal evidence invalidating the IRS’s claim. This supposedly
`
`violated his due process rights, equal protection rights, and rights under Federal Rule of
`
`Evidence 301, as well as causing him substantial prejudice.
`
`
`
`First, it is difficult to see how Mr. Prince was, as he put it, “surprised” by these exhibits.
`
`The IRS filed a witness and exhibit list prior to the December 15th hearing listing both exhibits.
`
`(Bankruptcy Proceeding, 09-43627, Dkt. 508). Mr. Prince does not argue that he did not receive
`
`this list. Also, one of the exhibits, the Proof of Claim, had been on file with the court since
`
`September 1, 2010. (Bankruptcy Proceeding, 09-43627, Claim 5-1).
`
`
`
`Further, the IRS clearly laid out the basis for its claim in its Motion to Distribute Secured
`
`Proceeds Held by the Estate, stating that it had filed its Proof of Claim in the proceeding and
`
`citing to a Federal tax lien filed with the Collin County Clerk. (Bankruptcy Proceeding, 09-
`
`43627, Dkt. # 488, pg. 2). Mr. Prince responded to this motion, acknowledging that “the IRS
`
`filed a lien.” (Bankruptcy Proceeding, 09-43627, Dkt. # 504, pgs. 8). It is difficult to see how
`
`Mr. Prince “had no knowledge of any said tax periods in questions [sic] . . . [or] any alleged tax
`
`
`
`9
`
`

`
`Case 4:16-cv-00039-RC Document 14 Filed 05/23/16 Page 10 of 12 PageID #: 230
`
`delinquent amounts,” when he specifically responded to the IRS’s Motion. (DOC. # 11, pgs. 22,
`
`29).
`
`It is also difficult to see how Mr. Prince was prevented from presenting his rebuttal
`
`evidence. He argued in his response to the IRS’s motion that “he does not owe the IRS any
`
`delinquent taxes, based upon the over $5 million overpayment in tax assessment due to the
`
`Lucent Technology business loss.” (Bankruptcy Proceeding, 09-43627, Dkt. # 504, pgs. 12). One
`
`would think that a person with as much litigation experience as Mr. Prince would have been
`
`prepared to support the claims he made in his response whether or not the IRS had provided its
`
`exhibits to him prior to the hearing.
`
`Finally, even if Mr. Prince was prevented from rebutting the IRS’s claim, his sole theory
`
`as to why the IRS’s claim is invalid rests on the $5 million credit owed to C. Prince &
`
`Associates. The court has already shown why this theory is meritless. Any error that prevented
`
`Mr. Prince from presenting his rebuttal evidence would have been harmless.
`
`Based on this record, the court cannot say that Mr. Prince was prejudiced, much less that
`
`the failure to produce the exhibits “so infused the [December 15th hearing] with unfairness” as to
`
`constitute a constitutional violation. Estelle v. McGuire, 502 U.S. 62, 75 (1991) (quoting Lisenba
`
`v. California, 314 U.S. 219, 228 (1941)). Federal Rule of Evidence 301 states that “the party
`
`against whom a presumption is directed has the burden of producing evidence to rebut the
`
`presumption.” Mr. Prince does not show how his failure to meet his burden of proof under this
`
`rule was caused by anyone but himself.
`
`10
`
`

`
`Case 4:16-cv-00039-RC Document 14 Filed 05/23/16 Page 11 of 12 PageID #: 231
`
`G. The bankruptcy court did not abuse its discretion by denying Mr. Prince’s Motion to
`Present Documentary Evidence.
`
`Approximately three weeks after the December 15th hearing, Mr. Prince filed a motion in
`
`the bankruptcy court asking it to vacate the Order dispersing funds to the IRS and presenting, for
`
`the first time, the evidence that C. Prince & Associates was allegedly entitled to a $5 million tax
`
`credit. (Bankruptcy Proceeding, 09-43627, Dkt. # 519). The bankruptcy court denied this motion
`
`on February 18, 2016. (Bankruptcy Proceeding, 09-43627, Dkt. # 527).
`
`“Among the factors the trial court should examine in deciding whether to allow a
`
`reopening [of the record and redetermination of a past decision] are the importance and probative
`
`value of the evidence, the reason for the moving party’s failure to introduce the evidence earlier,
`
`and the possibility of prejudice to the nonmoving party.” Garcia, 97 F.3d at 814.
`
`Mr. Prince is not allowed to apply the tax credit owed to C. Prince & Associates to his
`
`personal tax liabilities. Nothing prevented Mr. Prince from submitting his tax credit evidence at
`
`the December 15th hearing. The bankruptcy court correctly concluded that the new evidence
`
`would be irrelevant and that Mr. Prince had no reason for not introducing it at the hearing.
`
`(Bankruptcy Proceeding, 09-43627, Dkt. # 527). The bankruptcy court did not abuse its
`
`discretion in denying Mr. Prince’s motion.
`
`H. The Court does not decide whether the Trustee had standing to object.
`
`Finally, Mr. Prince argues that the Trustee did not have standing to object to his Motion
`
`for the Release of Homestead Exemption Payment. The Trustee has not filed a brief in this
`
`appeal. The Trustee’s objection to Mr. Prince’s request merely incorporated the IRS’s arguments
`
`for why it should receive the sale proceeds from the Covington Court Property. (Bankruptcy
`
`Proceeding, 09-43627, Dkt. # 493). While Mr. Prince argues that he was prejudiced by the
`
`11
`
`

`
`Case 4:16-cv-00039-RC Document 14 Filed 05/23/16 Page 12 of 12 PageID #: 232
`
`Trustee’s objection, nothing in the bankruptcy court’s orders or elsewhere shows that the
`
`bankruptcy court ever ruled that the Trustee had standing to object or relied on the Trustee’s
`
`objection in any material way when making its decision. Further, as stated above, the bankruptcy
`
`court’s decision was clearly based on current law. Therefore, it is unnecessary for the court to
`
`address whether the Trustee had standing or not.
`
`IV. CONCLUSION
`
`The bankruptcy court did not err in ordering that the $146,450 in proceeds designated as
`
`Mr. Prince’s homestead exemption shall be dispersed to the IRS. Accordingly, IT IS
`
`THEREFORE ORDERED that the bankruptcy court’s December 23, 2015 Orders dispersing the
`
`homestead exempt proceeds to the IRS and not Mr. Prince, as well as the Order denying Mr.
`
`Prince’s Motion to Present Documentary Evidence, are hereby AFFIRMED.
`
`12