     Case: 13-60704      Document: 00512867556         Page: 1    Date Filed: 12/12/2014




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT


                                      No. 13-60704                       United States Court of Appeals
                                                                                  Fifth Circuit

                                                                                FILED
UNITED STATES OF AMERICA,                                               December 12, 2014
                                                                           Lyle W. Cayce
              Plaintiff - Appellee                                              Clerk

v.

MARKUS BRENT STANLEY,

              Defendant - Appellant




                   Appeal from the United States District Court
                     for the Southern District of Mississippi
                             USDC No. 3:13-CV-864


Before KING, DENNIS, and CLEMENT, Circuit Judges.
PER CURIAM:*
       Dr. Markus Stanley (“Stanley”) did not fully pay his tax liabilities for the
years 1998 through 2010.           In 2011, the United States of America (the
“Government”) brought a civil action to reduce to judgment Stanley’s tax
liabilities for the tax years 1998-2010. In doing so, the Government asked the
district court to determine that Stanley’s tax liabilities for the years 1998-2008
were excepted from an earlier discharge in bankruptcy. The district court first


       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                 No. 13-60704
granted summary judgment for the Government as to Stanley’s tax liabilities
for the years 2005-2010 and then, following a bench trial, ruled in favor of the
Government regarding Stanley’s 1998-2004 tax liabilities as well. Stanley
appeals both decisions. For the reasons that follow, we AFFIRM the district
court’s judgment.
                               BACKGROUND
      Stanley is a doctor of osteopathic medicine, having been licensed to
practice medicine since approximately 1994.       He has worked primarily in
emergency room and family medicine. The district court found, and Stanley
does not contest, that:
      Dr. Stanley filed his tax returns late for the years 1998, 1999, 2000,
      2003, 2005, 2006, 2007, 2008, 2009, reported the wrong taxable
      income amount for the years 1998, 1999, 2000, 2001, 2003, and has
      not paid his tax liabilities in full for any of the eleven consecutive
      tax years from 1998 through 2008 in spite of the IRS’s considerable
      efforts to collect them.
The parties also do not dispute the amounts of the liabilities.
      On May 18, 2009, Stanley filed a petition for Chapter 7 bankruptcy
protection under Title 11 of the United States Code. Stanley’s bankruptcy
schedule included, inter alia, federal income tax liabilities for the years 1998-
2010, totaling $1,316,354.66. On January 19, 2011, the bankruptcy court
granted Stanley a discharge from his debts pursuant to 11 U.S.C. § 727. With
some notable exceptions, a § 727 discharge grants a general release from debts
that arose prior to the discharge. See 11 U.S.C. § 727(b). The Government did
not appeal the discharge.
      On August 11, 2011, the Government filed suit against Stanley, seeking
to reduce to judgment Stanley’s federal income tax liabilities for the tax years

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1998-2010.    The Government argued that Stanley’s tax liabilities were
excepted from his earlier discharge in bankruptcy pursuant to 11 U.S.C. § 523.
After more than a year of discovery, the Government filed a motion for
summary judgment, which the court granted in part and denied in part. The
court reduced to judgment Stanley’s tax liabilities for the years 2009 and 2010
because those liabilities accrued after he filed for bankruptcy. Similarly, the
district court concluded that Stanley’s liabilities for the years 2005-2008 were
excepted from discharge because they were assessed in the three years
immediately    before    Stanley   filed   for   bankruptcy.     See    11   U.S.C.
§§ 507(a)(8)(A)(i) & 523(a)(1)(A).     However, the district court denied the
Government summary judgment as to Stanley’s tax liabilities for the years
1998-2004, because nondischargeability of those liabilities required a showing
that “the debtor made a fraudulent return or willfully attempted in any
manner to evade or defeat such tax.” 11 U.S.C. § 523(a)(1)(C). The district
court determined that there was a genuine dispute of material fact as to
whether Stanley had the requisite mental state for his 1998-2004 liabilities to
be nondischargeable and therefore decided that a bench trial on that question
was warranted.
      Stanley argued that because he suffered from type II bipolar disorder, he
was incapable of forming the requisite “willful” mental state.          At trial, a
forensic psychologist testified for Stanley and concluded that Stanley indeed
suffered from a bipolar II disorder, which manifested in depressive episodes
that could cause the impairment of occupational and routine functioning. The
psychologist testified that there would have been times when Stanley was not
experiencing any symptoms of his bipolar condition, and then other periods
when he would slip into depressions or periods of irresponsible conduct. The
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psychologist also testified that Stanley’s failure to pay taxes was consistent
with his bipolar disorder. Despite this testimony, the district court ruled in
favor of the Government, finding that Stanley had “willfully” attempted to
evade taxes. United States v. Stanley, No. 5:11cv117–DCB–RHW, 2013 WL
4508410, at *9 (S.D. Miss. Aug. 23, 2013).
                         STANDARD OF REVIEW
      “The standard of review for bench trials is well-established: findings of
fact are reviewed for clear error; legal issues de novo.” Ergon-W. Va., Inc. v.
Dynegy Mktg. & Trade, 706 F.3d 419, 424 (5th Cir. 2013) (internal quotation
marks omitted). “[T]he question whether a debtor willfully attempted to evade
or defeat taxes is a question of fact, subject to the clearly erroneous standard
of review.” United States v. Warden, 59 F.3d 1242, 1995 WL 413034, at *2 n.1
(5th Cir. 1995) (per curiam) (unpublished) (citing In re Midland Indus. Serv.
Corp., 35 F.3d 164, 165 (5th Cir. 1994)); see also In re Vaughn, 765 F.3d 1174,
1180 (10th Cir. 2014); In re Jacobs, 490 F.3d 913, 921 (11th Cir. 2007); In re
Zuhone, 88 F.3d 469, 470, 473 (7th Cir. 1996).
                                DISCUSSION
I.    Estoppel
      Stanley first argues that the district court should not have heard this
case at all, because the Government’s proper recourse was a direct appeal of
the bankruptcy court’s decision. Stanley variously terms this argument “the
law of the case,” “issue preclusion,” and “standing.” The district court denied
Stanley relief on this ground because it found that Stanley had waived the
argument. We agree.



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      In his answer to the Government’s original complaint, Stanley stated
that the Government was estopped from pursuing collection of his tax
liabilities because it failed to initiate adversarial proceedings during the
pendency of the bankruptcy proceedings. He did not, however, pursue this
argument in a motion to dismiss or for summary judgment.             When the
Government moved for summary judgment, estoppel was not among Stanley’s
arguments in response. After the court granted the Government’s motion in
part, Stanley filed a motion for reconsideration in which he claimed, for the
first time, that the Government was required to appeal the bankruptcy court’s
discharge if it considered the discharge to be improper. The district court held
that Stanley had waived this argument by failing to raise it in his responses to
the Government’s motion for summary judgment or in a motion for summary
judgment of his own.
      The district court’s local rules require affirmative defenses to be raised
by separate motion. S.D. MISS. L. UNIF. CIV. R. 7(b)(2)(A). “Although the
affirmative defenses may be enumerated in the answer, the court will not
recognize a motion included within the body of the answer, but only those
raised by a separate filing.” Id. An affirmative defense such as collateral
estoppel likewise may not be raised in a motion seeking reconsideration. See
LeClerc v. Webb, 419 F.3d 405, 412 n.13 (5th Cir. 2005) (“A motion for
reconsideration may not be used to . . . introduce new arguments.”); Brown v.
Ill. Cent. R.R. Co., 480 F. App’x. 753, 754 (5th Cir. 2010) (holding statute-of-
limitations argument waived where not raised in response to motion for
summary judgment). Although Stanley included this argument in his Answer
as his “Second Affirmative Defense,” he failed to raise the defense via motion
until he filed his motion for reconsideration, by which point the district court
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had already entered partial summary judgment. Therefore, Stanley waived
the defense. See LeClerc, 419 F.3d at 412 n.13.

II.    Willfulness
       Stanley asserts that the district court erred in finding that he had
“willfully” attempted to evade his tax liabilities. Specifically, he argues that
his failure to pay his taxes was beyond his control, as it was caused by his
bipolar disorder. The district court determined that the evidence of Stanley’s
ability to carry out other complex tasks established that his failure to pay his
taxes for so many years constituted a willful attempt to evade his tax liabilities.
The court’s assessment was not clearly erroneous.
       Pursuant to 11 U.S.C. § 523(a)(1)(C), a discharge in bankruptcy under
§ 727 does not discharge tax liability where the debtor “willfully attempted in
any manner to evade” the tax liability. This provision exists “to ensure that
the Bankruptcy Code’s ‘fresh start’ policy is only available to honest but
unfortunate debtors.” United States v. Coney, 689 F.3d 365, 371 (5th Cir. 2012)
(internal quotation marks and alteration omitted).          “[T]he party arguing
against dischargeability bears the burden of proving the application of an
exception by a preponderance of the evidence.” Id. The “willful attempt”
standard under § 523(a)(1)(C) has been interpreted to contain both a conduct
requirement—that the debtor “attempted in any manner to evade or defeat [a]
tax”—and a mental state requirement—that the attempt was “willful.” Id.
(quoting § 523(a)(1)(C)).
       Stanley does not contest that he satisfied the conduct requirement,
arguing instead that his bi-polar disorder prevented him from forming the
requisite “willful” mental state. This court employs a three-pronged test to

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determine willfulness in the tax evasion context, considering whether “the
debtor (1) had a duty to pay taxes under the law, (2) knew he had that duty,
and (3) voluntarily and intentionally violated that duty.” Id. at 374 (citing In
re Bruner, 55 F.3d 195, 197 (5th Cir. 1995)); see also In re Fretz, 244 F.3d 1323,
1330 (11th Cir. 2001). The third prong is satisfied by either “an affirmative act
or culpable omission that, under the totality of the circumstances, constituted
an attempt to evade or defeat the assessment, collection, or payment of a tax.”
Coney, 689 F.3d at 374, 376. “[T]he debtor need not have made their attempt
with the specific intent to defraud the IRS.” Id. at 374. Stanley concedes the
first two prongs and argues only that his bipolar disorder prevented him from
“voluntarily and intentionally” attempting to evade payment of a tax. This
court has only once considered the issue of a debtor’s mental state for a willful
attempt to evade tax liabilities, and we did so under significantly different
circumstances. See id. at 371. As noted in Coney, however, other courts have
given substantial guidance on this issue. Id.
      In determining willfulness in the evasion context, “nonpayment of tax
alone is not sufficient to bar discharge of a tax liability.” In re Birkenstock, 87
F.3d 947, 951 (7th Cir. 1996) (citing In re Haas, 48 F.3d 1153, 1158 (11th Cir.
1995)).   If nonpayment alone were enough, then honest debtors would be
denied discharge, for honest debtors may sometimes fail to pay their debts only
because of insufficient resources. Id. Although nonpayment does not suffice
on its own, “a ‘knowing and deliberate’ nonpayment provides the basis for
determining that the tax debt is non-dischargeable.” In re Gardner, 360 F.3d
551, 557 (6th Cir. 2004). Thus, for example, failure to pay taxes in conjunction
with failure to file tax returns may indicate a willful state of mind. See In re
Toti, 24 F.3d 806, 809 (6th Cir. 1994). Similarly, a debtor’s failure to pay taxes
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when he or she had the ability to pay, while not dispositive, can also suggest
willfulness. See Coney, 689 F.3d at 378 n.4. As a result, evidence of lavish
living while simultaneously failing to meet tax obligations may suggest
voluntary and intentional violation of one’s duty to pay taxes. See, e.g., United
States v. Storey, 640 F.3d 739, 745 (6th Cir. 2011) (reasoning that when a
debtor makes a large purchase after he has “stopped paying taxes, there might
be reason to suspect an intent to evade [his] tax obligations”); In re Mitchell,
633 F.3d 1319, 1329 (11th Cir. 2011) (“[W]illful intent is further shown by [the
debtor’s] discretionary spending, which included purchasing vacation
timeshares, purchasing stock, repaying a $30,000 personal loan, and donating
approximately $81,000 to his church.”); Gardner, 360 F.3d at 560-61 (finding
that debtor’s choice to expend substantial sums on twenty golfing and vacation
trips over three-year span instead of paying taxes was indicative of
willfulness).
      Although a lavish lifestyle is not dispositive, the district court
appropriately considered Stanley’s spending habits in determining whether he
had “voluntarily and intentionally” attempted to evade taxes. During the
period in which he neglected his tax obligations, Stanley entered into several
fairly complicated real estate transactions wherein he put the property in his
wife’s name, at least in part to protect it from being seized in the course of a
lawsuit, and he made timely mortgage payments. Stanley also purchased a
number of luxury items during this time, including an expensive motorcycle, a
number of automobiles, as well as a $16,000 ring and a $2,500 necklace for his
wife, on which he generally made timely payments.          In addition, Stanley
established a wholly-owned corporation, of which he was the principal
employee, though the corporation failed to withhold income taxes. Stanley
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made numerous cash withdrawals from the corporation, which he turned over
to his wife, although she did not do any work for the corporation. During the
relevant time period, Stanley also accrued over 1,000 overdraft obligations.
The district court noted that Stanley “testified that he put his mail, unopened,
in a box, thus turning a blind eye to [his federal income tax] obligations yet
simultaneously and timely servicing other debts.” Stanley did pay certain
taxes during this time, including various state taxes and a license-plate fee.
After negotiations with the IRS, Stanley entered into an installment
agreement regarding his liabilities for 1998-2003, but breached the agreement
shortly thereafter.      He generally failed to file timely tax returns and he
underreported his income on those returns he did file. These actions indicate
Stanley’s willfulness.
      Stanley does not dispute any of this evidence, but argues that, despite
his lavish expenditures, his bipolar disorder rendered him incapable of forming
the requisite mindset to willfully attempt to evade taxes. Indeed, Stanley
argues that his profligate spending supports his contention that he was not in
control of his own actions. Stanley’s argument is belied by the evidence that
during the relevant time period, he was able to continue to practice medicine
and monitor his other debts. A debtor’s ability to successfully carry out duties
in a demanding profession is evidence of a corresponding ability to form a
willful mindset to evade tax obligations. See Fretz, 244 F.3d at 1331 (“Put
bluntly, someone who can control his drinking enough to perform medical
procedures during twelve- to twenty-four hour shifts in an emergency room
over a period of years can control his drinking enough to file tax returns and
pay taxes during that same period.”); In re Hamer, 328 B.R. 825, 835 (Bankr.
N.D. Ala. 2005) (finding, based on his spending habits and ability to practice
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                                       No. 13-60704
medicine, that a debtor who entered drug rehabilitation at one point was still
able to form the mental state to willfully attempt to evade taxes). In light of
Stanley’s demonstrated ability to continue his medical practice, tend to many
of his other financial obligations, and participate in complex financial
transactions, compounded by the length of time at issue (over a decade) and
evidence that Stanley would have had periods when he exhibited no symptoms
of bipolar disorder during this span, the district court did not clearly err when
it concluded that Stanley voluntarily and intentionally attempted to evade his
tax obligations. We therefore uphold the district court’s finding that Stanley
willfully attempted to evade his federal income taxes. 1

III.     Judicial Bias and Right to a Jury Trial
         Stanley further argues that the district court judge should have recused
himself due to bias and improperly denied him a jury trial. As described by
Stanley, both arguments stem from the district judge allegedly making
“several invective statements concerning the facts of this case” in his order




         In his discussion of the mental state requirement, Stanley makes a number of other
         1

arguments that merit no more than a passing mention. Stanley briefly argues that the
Government’s attempt to collect his outstanding tax liabilities amounts to “overt class
discrimination” and “tax profiling” in violation of the Due Process and Equal Protection
Clauses of the Fourteenth Amendment as well as the Taxpayer Bill of Rights, Pub. L. No.
104-168, § 301(a), 110 Stat. 1452 (1996). Stanley also states that the district court’s order
granting partial summary judgment evinced an application of the “McNaughten Rules,”
which are not applicable to an evaluation of willfulness under § 523(a)(1)(C). Finally, Stanley
argues that because he suffers from bipolar disorder, punishing him for behavior outside of
his control as a result of his disorder would violate the Americans with Disabilities Act of
1990 (ADA), 42 U.S.C. §§ 12101-12213 (2000). Stanley cites no relevant authority or evidence
in support of any of these claims, nor does he explain them in any detail. Due to Stanley’s
failure to brief these issues in any meaningful sense, we do not consider them. See Procter &
Gamble Co. v. Amway Corp., 376 F.3d 496, 499 n.1 (5th Cir. 2004) (“Failure adequately to
brief an issue on appeal constitutes waiver of that argument.”).
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granting in part and denying in part summary judgment. Neither argument
has merit.
      A district court judge “shall disqualify himself in any proceeding in which
his impartiality might reasonably be questioned,” 28 U.S.C. § 455(a), and “[h]e
shall disqualify himself . . . [w]here he has a personal bias or prejudice
concerning a party,” id. § 455(b)(1). Stanley’s allegations of bias derive from
the district court’s statements considering, on motion for summary judgment,
whether Stanley acted willfully in attempting to evade his 1998-2004 tax
liabilities. Stanley argues that the district judge demonstrated bias in his
summary judgment order by, for example, characterizing Stanley’s evidence as
“strained” and noting that “it is hard to envision a debtor violating the conduct
requirement [of the willfulness test] without also violating the mental state
requirement because an attempt requires some form of intent to commit an
act.” However, “judicial rulings alone almost never constitute a valid basis for
a bias or partiality motion” and “judicial remarks during the course of a trial
that are critical or disapproving of, or even hostile to, counsel, the parties, or
their cases, ordinarily do not support a bias or partiality challenge.” Liteky v.
United States, 510 U.S. 540, 555 (1994); see also Andrade v. Chojnacki, 338
F.3d 448, 462 (5th Cir. 2003) (noting that “Liteky draws no distinction based
on the type of proceeding, and none is warranted”). Such remarks do not
suggest bias “unless they display a deep-seated favoritism or antagonism that
would make fair judgment impossible.” Litkey, 510 U.S. at 555; see also United
States v. Scroggins, 485 F.3d 824, 830 (5th Cir. 2007) (finding no abuse of
discretion in denial of recusal motion where “[t]he facts . . . do not demonstrate
bias and impartiality that are personal—as distinguished from judicial—in
nature”). Stanley’s argument is particularly weak here, as he alleges that the
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district judge’s statements demonstrated bias against Stanley’s “willfulness”
argument, but the statements to which Stanley points came from the district
judge’s consideration, and ultimate denial, of the Government’s motion for
summary judgment on the “willfulness” issue. Because the district judge’s
statements do not demonstrate “a deep-seated favoritism or antagonism that
would make fair judgment impossible,” they fail to support a claim for bias or
prejudice. See Liteky, 510 U.S. at 555.
      Stanley’s contention that he was wrongly denied a jury trial is similarly
meritless.   Proceedings concerning the nondischargeability of debts are
equitable in nature and therefore “[b]ankruptcy litigants . . . have no Seventh
Amendment right to a jury trial in dischargeability proceedings.”           In re
Hashemi, 104 F.3d 1122, 1124 (9th Cir. 1996); In re Hallahan, 936 F.2d 1496,
1505 (7th Cir. 1991) (“[A] dischargeability proceeding is a type of equitable
claim for which a party cannot obtain a jury trial.”). Stanley therefore had no
right to a jury to determine the dischargeability of his income tax liability.
Although Stanley did have a right to a jury trial as to the liability and amount
of his unpaid taxes, he does not dispute those aspects of the Government’s
claim. See In re Merrill, 594 F.2d 1064, 1068 (5th Cir. 1979). Thus, the district
court did not err in denying Stanley’s request for a jury trial.
                                CONCLUSION
      For these reasons the district court’s judgment is AFFIRMED.




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