“Bankruptcy courts have inherent or ancillary jurisdiction to interpret and enforce their own orders wholly independent of the statutory grant of jurisdiction under 28 U.S.C. § 1334.”
How later courts described this case
- “Bankruptcy courts have inherent or ancillary jurisdiction to interpret and enforce their own orders wholly independent of the statutory grant of jurisdiction under 28 U.S.C. § 1334.”
- “This Court has not found additional authority supporting the proposition that the bankruptcy court lacks subject- matter jurisdiction to enforce or nullify orders previously entered in a now-dismissed bankruptcy case[.]”
- finding the bankruptcy court retained jurisdiction over post-settlement disputes because the confirmation order provided that court would retain jurisdiction
Written by the judges who cited it.
The opinion
2:25-cv-00088-cr Document13 Filed 09/29/25 Page 1 of 20
way GUST RIOT COURT
Tea maT OF VERMONT
UNITED STATES DISTRICT COURT ee
FOR THE 285 SEP 29 PM □□□□□
DISTRICT OF VERMONT
CLER}
oy Vw
DEPUTY CLERK
UNITED STATES OF AMERICA, )
)
Appellant, )
)
V. ) Case No. 2:25-cv-00088-cr
)
LORENZO P. QUESNEL, JR., and )
AMY L. QUESNEL, )
)
Appellees. )
OPINION AND ORDER
AFFIRMING IN PART THE BANKRUPTCY COURT’S JANUARY 8, 2025
ORDER DENYING APPELLANT’S MOTION TO CLARIFY, ALTER, OR
AMEND
(Doc. 1-4)
In this appeal, the United States, on behalf of the Internal Revenue Service
(“IRS”),! appeals a January 8, 2025, order issued by the United States Bankruptcy Court
for the District of Vermont (“Bankruptcy Court”), Case No. 22-10167. On December 6,
2022, Lorenzo P. Quesnel, Jr., and Amy L. Quesnel (“Debtors”), filed a voluntary
petition for relief pursuant to Chapter 12 of the Bankruptcy Code. On July 18, 2024, the
Bankruptcy Court issued an Order Approving Sale of Property Pursuant to 11 U.S.C.
§ 1206 and Vt. LBR 6004-1 (the “Sale Order”). On November 8, 2024, the Debtors filed
an ex parte motion to dismiss their case pursuant to 11 U.S.C. § 1208(b). The Bankruptcy
Court granted the motion and dismissed the case on November 12, 2024 (the “Dismissal
Order”).
' The United States Department of Agriculture (“USDA”) was originally a party to the
bankruptcy case, but it does not appeal.
2:25-cv-00088-cr Document13 Filed 09/29/25 Page 2 of 20
On November 26, 2024, the IRS filed a motion to clarify, alter, or amend the
Dismissal Order to provide that the Sale Order remained enforceable, Dkt. 239. The
Bankruptcy Court issued an order denying the motion to clarify, alter, or amend, Dkt.
249, and the IRS appeals that order. (Doc. 1.)
In this appeal, the IRS seeks enforcement of the provisions contained in Paragraph
15 of the Sale Order or, alternatively, requests reversal of the Final Order and Decision,
withdrawal of the reference pursuant to 28 U.S.C. § 157(d), and issuance of an order
enforcing the Sale Order.
The IRS frames the issues on appeal as follows:
1. Did the Bankruptcy Court err in concluding that the Sale Order’s
unfulfilled provisions were rendered unenforceable by the Dismissal
Order’s silence on the matter?
2. If the Sale Order’s provisions were not rendered unenforceable by
the Dismissal Order, did the Bankruptcy Court in effect amend the
Dismissal Order to vacate the Sale Order or render the subject
provisions of the Sale Order unenforceable and, if so, did it err in so
doing?
3. If the Dismissal Order initially vacated the Sale Order or rendered
the subject provisions unenforceable, did the Bankruptcy Court err
in refusing to amend it to preserve the enforceability of the subject
terms of the Sale Order?
(Doc. 10 at 8-9.)
The IRS filed its brief on May 20, 2025. (Doc. 10.) The Debtors responded on
June 20, 2025, (Doc. 11), and the IRS replied on July 3, 2025, (Doc. 12), at which point
the court took the matter under advisement.
The IRS is represented by Assistant United States Attorney Jocelyn L. Brown.
David H. Ealy, Esq., and Rebecca A. Rice, Esq., represent the Debtors.
I. Factual and Procedural Background.
On December 6, 2022, the Debtors filed a voluntary petition for relief pursuant to
Chapter 12 of the Bankruptcy Code,” as well as a motion to sell development rights. On
2 “In 1986, Congress enacted Chapter 12 of the Bankruptcy Code, § 1201 ef seq., to allow farmer
debtors with regular annual income to adjust their debts.” Hall v. United States, 566 U.S. 506,
2:25-cv-00088-cr Document13 Filed 09/29/25 Page 3 of 20
December 15, 2022, the IRS filed its proof of claim in the amount of $321,925.98,
comprised of a secured claim in the amount of $318,763.38 and a general unsecured
claim in the amount of $3,162.60. These amounts arose from the Debtors’ failure to pay
federal income, payroll, and unemployment taxes at various times between 2011 and
2017.
On December 27, 2022, the IRS filed a response to the Debtors’ motion to sell,
wherein it challenged the Debtors’ motion and their eligibility for relief under Chapter
12. Thereafter, on February 23, 2023, the Bankruptcy Court entered an order approving
the sale of development rights for $650,000.00. That amount “included a reservation of
rights as to any issues raised by either the United States (on behalf of the IRS and/or
USDA) or the United States Trustee’s Office.” (Doc. 10 at 11.) (citation omitted). “For
the next year and a half, those same [objections] that were raised by the [IRS] continued
to be a point of contention whenever the Debtors sought to confirm a new plan
culminating with the negotiations over the Sale Order.” fd.
The Debtors filed an initial Chapter 12 plan for which they did not seek
confirmation. On December 21, 2023, they filed an Amended Chapter 12 plan. A few
weeks later, on January 5, 2024, the Debtors filed a motion to sell pursuant to 11 U.S.C.
§ 1206 and Vt. LBR 6004-1 (the “Sale Motion”), wherein they proposed to sell a portion
of their land and outbuildings to their daughter and son-in-law, Kylie and Jeremy
Chittenden (the “Chittendens”), with the proceeds of the sale to be distributed to the
Chittendens and other bankruptcy creditors. The Bankruptcy Court properly recognized
that the Chittendens are “insiders relative to the [Debtors].” (Doc. 2-18 at 1.) On
February 8, 2024, the IRS filed its objections to the Debtors’ Amended Chapter 12 plan
and the Sale Motion. Therein, the IRS reaffirmed its prior objections, challenging the
Debtors’ eligibility for relief under Chapter 12 and claiming that the Debtors had
509 (2012). Chapter 12 “permits individual debtors with regular annual income to preserve
existing assets subject to a ‘court-approved plan under which they pay creditors out of their
future income.’” Jd. (quoting Hamilton v. Lanning, 560 U.S. 505, 508 (2010)).
2:25-cv-00088-cr Document13 Filed 09/29/25 Page 4 of 20
untimely submitted multiple versions of their federal income tax returns for tax years
2019 through 2022.
The Debtors filed a Second Amended Chapter 12 plan on March 15, 2024. Five
days later, they filed a supplement to the Second Amended Plan. The IRS objected to the
confirmation of the Second Amended Plan on April 12, 2024, and on May 20, 2024, the
Debtors filed a supplement to the Sale Motion as well as a Third Amended Chapter 12
plan.
On June 7, 2024, among other objections lodged by other parties, the IRS objected
to the confirmation of the Third Amended Plan and the Sale Motion, in part due to its
concerns that the Debtors’ late-filed tax returns, which were under IRS audit, might be
inaccurate and concerns that the capital gains taxes due from the sale, which the Debtors
estimated would total $367,963, might go unpaid.
One week later, on June 14, 2024, the Debtors filed a Fourth Amended Chapter 12
plan. The Bankruptcy Court held a hearing on June 21, 2014 (the “June 21 hearing”),
during which it addressed the Debtors’ Fourth Amended Chapter 12 plan and the Sale
Motion and set those matters for an evidentiary hearing on July 19, 2024.
After the June 21 hearing, all creditors and parties-in-interest, including the IRS,
the USDA, and the Debtors, engaged in settlement discussions. As a result of the parties’
negotiations, on July 17, 2024, on behalf of the parties, the Chittendens filed a proposed
order approving the sale of property pursuant to § 1206 and Vt. LBR 6004-1 (the
“proposed Sale Order”). In presenting the proposed Sale Order to the Bankruptcy Court,
the Chittendens advised that although “there’s support for [the] sale upon the terms that
are reflected in the [proposed] [S]Jale [O]rder[,]” (Doc. 10 at 15) (quoting Doc. 2-32 at
9:15-17), “there’s a reticence about proceeding with a plan, with a planned
confirmation[.]” Jd. (quoting Doc. 2-32 at 9:14-15). On July 18, 2024, the Bankruptcy
Court issued an order approving the proposed Sale Order.?
3 Neither the parties to this appeal nor the Bankruptcy Court indicate whether the Bankruptcy
Court made modifications to the proposed Sale Order. The court’s review of the two documents
2:25-cv-00088-cr Document13 Filed 09/29/25 Page 5 of 20
In relevant part, the Sale Order states:
The Court specifically notes that various creditors and parties-in-interest
have previously filed objections to the relief sought by the Sale Motion.
This Order is the product of negotiations between the Debtors, the
Purchasers, and those parties who previously filed objections to the relief
sought by the Sale Motion and is therefore being entered with the consent
of such parties subject to the terms delineated within this Order. As such,
all objections to the sale contemplated by the Sale Motion, as modified by
this Order, not previously withdrawn are overruled to the extent that the
sale approved by this Order occurs by the time set within this Order, and all
parties who have consented to entry of this Order have also similarly
consented to entry of an order, of near or even date hereof, approving the
lease of the so-called Cornwall Farm by the Debtors to the Purchasers.
(Doc. 2-18 at 2.)
The Sale Order states that all participants, including the Debtors, acted in good
faith in the negotiations:
The Purchasers are good faith purchasers in that the Debtors, the
Purchasers, and their respective counsel have engaged in extensive, good-
faith, arm’s length negotiations to determine the terms and conditions of the
Sale and the [purchase and sale agreement and][,] the Debtors and
Purchasers have entered into the [purchase and sale agreement] in good
faith. Accordingly, the Purchasers, upon the closing of the sale as
contemplated hereby, are entitled to all of the protections afforded under
Section 363(m) of the Bankruptcy Code.
Id. at 11,97.
The Sale Order also provides that the Chittendens furnished adequate
consideration:
The [purchase and sale agreement] represents a fair and reasonable offer to
purchase the Properties under the circumstances of this Chapter 12 case, the
consideration to be paid is fair and adequate, and the consummation of the
Sale to the Purchasers is a reasonable exercise of the Debtors’ business
judgment.
Id. at 11,9 8.
The Sale Order directs the Debtors to allocate the sale proceeds as follows:
reveals that the Bankruptcy Court made minor revisions to the proposed Sale Order which are
immaterial for purposes of this appeal.
2:25-cv-00088-cr Document13 Filed 09/29/25 Page 6 of 20
At the closing of the Sale, the Debtors are authorized and directed to make
the following payments from the Sale proceeds directly to the following
creditors: . . . to the Department of the Treasury, [IRS], the aggregate
amount of $362,906.44 [] (as of September 20, 2024), plus interest accrued
thereafter at the statutory rate, in full and final satisfaction of the IRS’s
prepetition secured claims against the Debtors and the estate[.]
Id. at 8, 10, § 6-H (footnotes omitted).
With regard to excess sale proceeds, the Sale Order provides:
All remaining sale proceeds shall be turned over to the Chapter 12 Trustee
to hold pending confirmation of a Chapter 12 plan by the Debtors, and
shall be available to satisfy, among other things, trustee’s fees (estimated to
be $27,444.06), Debtors’ counsel fees (estimated $55,000), reimbursement
of Phoenix for funds advanced for appraisal costs ($5,000) and $1,000
advanced by the Chapter 12 Trustee for that same appraisal, and priority
and general unsecured claims. The Chapter 12 Trustee shall be authorized
to satisfy the Phoenix appraisal-related administrative expense, and to
reimburse himself the $1,000 advanced by him for that appraisal, without
further order of this Court.
Id. at 10, § 6-L (emphasis supplied).
In respect to potential dismissal of the bankruptcy case, the Sale Order states: “If
the Sale does not close on or before November 1, 2024, the Debtors’ bankruptcy case
shall be dismissed, unless otherwise agreed to by all parties who hold mortgages or liens
on the Properties.” /d. at 11, 4 10. “If either the Debtors and/or the Purchasers fail to
make any adequate protection payment as required herein, the Court, upon request of an
affected party may ex parte enter an Order dismissing the bankruptcy proceeding. (Doc.
2-18 at 12, | 12.) The Sale Order is silent regarding a dismissal initiated by the Debtors.
_ Paragraph 15 of the Sale Order states:
Any tax obligations due to the United States arising from the sale of the
Properties shall be paid in full by the Debtors by the date when such
amounts would come due in the absence of any bankruptcy but excluding
any deadlines relative to the payment of estimated taxes. As such, any plan
proposed by the Debtors shall provide for the payment of such obligations
to the United States in full and shall, to the extent necessary to effect such
payment in full, provide for a waiver of 11 U.S.C. § 1232. Further, so as to
ensure that the Debtors have the funds necessary to satisfy such obligations,
the Debtors are hereby ordered to hold and preserve, and not dissipate or
impair in any way, those funds held by Dairy Farmers of America
2:25-cv-00088-cr Document13 Filed 09/29/25 Page 7 of 20
[(“DFA”)] totaling $325,000 and listed at Item 21 of the Debtors’ amended
Schedule A/B [DE 29, Dated February 2, 2023], subject to further order of
this Court.
Id. at 12-13, 4 15.
The Sale Order finally provides: “The Court shall retain jurisdiction over the
parties with respect to this Sale Order, including any disputes arising hereunder.” Jd. at
13,9 18.
The Bankruptcy Court held a hearing on July 18, 2024, during which it approved
the Sale Order and denied without prejudice confirmation of the Debtors’ Fourth
Amended Chapter 12 plan. That same day, the Sale Order was issued.* The Bankruptcy
Court scheduled a status conference for September 26, 2024.
Pursuant to the Sale Order, the sale of the Debtors’ real estate closed on November
1, 2024. Thereafter, the IRS received a payment of $366,407.71, fully satisfying its
secured pre-bankruptcy liens but not its unsecured claim. The USDA mortgage was also
paid in full. One week later, on November 8, 2024, the Debtors filed an ex parte motion
to dismiss the case pursuant to 11 U.S.C. § 1208(b).° The Bankruptcy Court entered the
Dismissal Order on November 12, 2024.
On November 26, 2024, the IRS filed a motion to clarify, alter, or amend, pursuant
to Bankruptcy Rule 9023, the Dismissal Order (the “Motion to Clarify”), wherein it asked
the Bankruptcy Court to clarify the Dismissal Order “to confirm that the Sale Order had
not been vacated and that its unfulfilled terms remained effective and [enforceable] by
the Bankruptcy Court including, in particular, paragraph 15.” (Doc. 10 at 16.)
Alternatively, the IRS asked the Bankruptcy Court to amend the Dismissal Order to state
4 On October 29, 2024, the Bankruptcy Court issued an Order Approving a Stipulated Motion to
Amend the Sale Order. Those amendments are not relevant to this appeal.
> “On request of the debtor at any time, if the case has not been converted under section 706 or
1112 of this title, the court shall dismiss a case under this chapter. Any waiver of the right to
dismiss under this subsection is unenforceable.” 11 U.S.C. § 1208(b). The record contains no
explanation as to why the filing was made on an ex parte basis. The application for dismissal
cites Bankruptcy Rule 9013, which states: “Unless a written motion may be considered ex parte,
the movant must, within the time prescribed by Rule 9006(d), serve the motion on [certain
individuals[.]” Fed. R. Bankr. P. 9013.
2:25-cv-00088-cr Document13 Filed 09/29/25 Page 8 of 20
that the Sale Order was not vacated and that the Bankruptcy Court retained jurisdiction to
enforce it.
In support of its Motion to Clarify, the IRS asserted that the Debtors’ submissions
during the bankruptcy case suggested the capital gains on the sale of land would be at
least $1,750,000, resulting in a tax of approximately $287,895. As of the filing of the
Motion to Clarify, the Chapter 12 trustee had distributed to the Debtors the net proceeds
of the land sale to the Chittendens, totaling $500,000. The IRS contended in its motion
that the Debtors must use those proceeds to timely pay the capital gains taxes and other
anticipated “significant tax deficiency assertions” that the IRS was auditing. (Doc. 2-23 at
6, 12.) In light of the Debtors’ apparent intent to transfer their remaining parcel of
farmland to their children, the IRS argued it “ha[d] ample reason to want the gains tax
provision in the Sale Order to be enforceable.” Jd.
The Debtors opposed the IRS’s motion on December 13, 2024, asserting “that they
had already received and disbursed a portion of the DFA funds that they had been
ordered to hold and preserve.” (Doc. 10 at 19) (citation and internal quotation marks
omitted). They pointed out that the capital gains tax on the land sale was not due until
April 15, 2026, and they had made an estimated 2024 tax year payment of $100,000. The
IRS replied on December 19, 2024, and the Bankruptcy Court heard arguments on the
Motion to Clarify on December 20, 2024 (the “December 20, 2024 hearing”).
At the December 20, 2024 hearing, the Bankruptcy Court afforded the IRS the
opportunity to present evidence of the parties’ negotiations that gave rise to the proposed
Sale Order. The IRS proffered no evidence. The IRS also declined an opportunity to
present such evidence at a future evidentiary hearing.
On January 8, 2025, the Bankruptcy Court entered a Final Order and Decision
denying the IRS’s Motion to Clarify. In its memorandum of decision, the Bankruptcy
Court explained its rationale as follows:
It is well established that bankruptcy courts retain jurisdiction after a case
has been dismissed or closed to interpret or enforce previously entered
orders. Therefore, it follows [that] the Court has authority to interpret and
enforce its orders insomuch as they affect the parties’ rights and liabilities.
2:25-cv-00088-cr Document13 Filed 09/29/25 Page 9 of 20
Moreover, even after dismissal, bankruptcy courts are empowered to
protect rights parties have acquired in reliance of a bankruptcy case.
However, in order to exercise this authority[,] the Court must first
determine a right was actually acquired in reliance of the case.
(Doc. 1-2 at 5-6) (footnotes omitted).
The Bankruptcy Court found that the IRS failed to establish the relief it sought
was “pursuant to a right it acquired in reliance of the bankruptcy case.” Jd. at 6.
Addressing the Debtors’ obligation to pay capital gains taxes accruing from the land sale,
the Bankruptcy Court reasoned that because “[t]he IRS is already entitled to payment of
the capital gains taxes as a matter of law and has every right to seek relief outside of
bankruptcy[,] . . . the Court is not empowered to enforce this right.” Jd.
Turning to the request that the Debtors be required to hold $325,000 of the DFA
funds until they were required to pay the capital gains taxes, the Bankruptcy Court
observed:
The IRS is correct that the Sale Order directs funds to be held separately in
anticipation of payment of the capital gains tax, but when read within the
context of the paragraph, such direction appears related to the anticipated
filing of a future proposed chapter 12 bankruptcy plan. Because no further
plan was ever filed or confirmed and the case was subsequently dismissed,
the provision is moot.
Id. at 6-7. The Bankruptcy Court noted that:
Although the IRS later argued it would not have agreed to the sale if not for
inclusion of the language [in Paragraph 15 of the Sale Order], it has not
pointed to anything in the record or presented any evidence to support its
position. Nothing in the Sale Order or prior objections clearly indicate the
IRS required such a provision or the risk of future non-payment was a
material concern.
Id. at 7 (emphasis supplied). The Bankruptcy Court also “consider[ed] it significant that
the Sale Order provided for the IRS’[s] claims to be paid in full — meaning its interests
were not impaired.” Jd.®
® The Bankruptcy Court’s observation in dicta is not wholly accurate. The IRS’s unsecured claim
was not paid in full.
2:25-cv-00088-cr Documenti13 Filed 09/29/25 Page 10 of 20
On January 23, 2025, the IRS appealed the Bankruptcy Court’s decision. On
March 24, 2025, it moved for an extension of time to file its brief in light of the
upcoming April 15 deadline for the filing of taxes and the possibility that the case might
become moot. On May 6, 2025, this court granted the IRS’s motion. (Doc. 8.) As of the .
filing of the IRS’s brief, the Debtors had not filed their 2024 tax return nor paid the
capital gains taxes other than the $100,000 estimated taxes which they paid on December
27, 2024.’ Instead, they timely applied for an extension of time to file their 2024 tax
return.
II. Conclusions of Law and Analysis.
A. Standard of Review.
28 U.S.C. § 158(a) vests district courts with “jurisdiction to hear appeals” from
“final judgments, orders, and decrees” of bankruptcy courts. 28 U.S.C. § 158(a)(1).
Although a bankruptcy court’s findings of fact are not conclusive on appeal, “‘the party
that seeks to overturn them bears a heavy burden.’” /n re Lehman Bros. Holdings, Inc.,
415 B.R. 77, 83 (S.D.N.Y. 2009) (quoting In re Miner, 299 B.R. 561, 565 (B.A.P. 2d Cir.
1999)). “Generally in bankruptcy appeals, the district court reviews the bankruptcy
court’s factual findings for clear error and its conclusions of law de novo.” Jn re Charter
Commce’ns, Inc., 691 F.3d 476, 482-83 (2d Cir. 2012) (citing Fed. R. Bankr. P. 8013).
“[T]he standard of review for a mixed question [of law and fact] all depends [] on
whether answering it entails primarily legal or factual work.” U.S. Bank Nat’l Ass’n ex
rel, CWCapital Asset Mgmt. LLC v. Vill. at Lakeridge, LLC, 583 U.S. 387, 396 (2018).
For factual findings, “[a] finding is clearly erroneous when, on consideration of the
7 The IRS explains:
Under subsection (i) of § 6654, farmers need only make a single annual estimated
payment on January 15 of the following year. Anyone applying for an extension is
required to pay any estimated payment not already made. Treasury regulation (26
C.F.R.) 1.6081-4 requires that an extension application include “the full amount
properly estimated as tax for the taxable year” and explains that the application
“will not extend the time for payment of any tax due.”
(Doc. 12 at 21) (internal citation omitted).
10
2:25-cv-00088-cr Document1i3 Filed 09/29/25 Page 11 of 20
record as a whole, the reviewing court is left with the definite and firm conviction that a
mistake has been committed.” Bassett v. SAC Fund II 0826, LLC, 2025 WL 2208256, at
*3 (E.D.N.Y. Aug. 4, 2025) (citations and internal quotation marks omitted).
A bankruptcy court’s interpretation of the text of a plan or confirmation order are
conclusions of law this court reviews de novo. See In re Duplan Corp., 212 F.3d 144, 151
(2d Cir. 2000) (citing Bellefonte Reins. Co. v. Aetna Cas. and Sur. Co., 903 F.2d 910, 912
(2d Cir. 1990)) (“The Bankruptcy Court’s interpretation of the text of the Plan, the
Confirmation Order, and the Final Decree are conclusions of law reviewed de novo.”). A
bankruptcy court’s denial of a motion to alter its prior decision is reviewed for an abuse
of discretion. See Bassett, 2025 WL 2208256, at *3. This standard provides:
Motions to vacate, alter, or reconsider a bankruptcy court’s decisions or
findings are governed by Federal Rules of Civil Procedure 52(b), 59(e), and
60(b), which apply to adversary proceedings through Federal Rules of
Bankruptcy Procedure 7052, 9023, and 9024, respectively. A district court
reviews a bankruptcy court’s rulings on motions to vacate or reconsider for
abuse of discretion. This means that the district court does not consider
what it would have done under the same circumstances, but whether, in
light of the records as a whole, the bankruptcy court’s decision was
reasonable. The abuse of discretion standard is a high one; it is satisfied
only when the record shows that the bankruptcy court based its decision on
an erroneous view of the law or clearly erroneous factual findings.
Id. (alteration adopted) (internal citations and quotation marks omitted).
B. Whether the Bankruptcy Court Abused Its Discretion in Refusing to
Enforce Paragraph 15 of the Sale Order.
1. Whether the Dismissal Order Vacated the Sale Order.
The IRS argues, and the Debtors do not contest, that the Dismissal Order did not
vacate the Sale Order. The court agrees. The Sale Order thus remained valid and
enforceable notwithstanding the dismissal of the bankruptcy case.
In its memorandum of decision, the Bankruptcy Court opined that, although it
retained jurisdiction to enforce orders post-dismissal, its-ability to do so depended not on
the continued validity of the Sale Order, but on whether the IRS sought to vindicate a
right acquired in reliance on the bankruptcy case. The IRS contends that the Bankruptcy
Court erred in reaching this conclusion because the plain language of the dismissal
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2:25-cv-00088-cr Document13 Filed 09/29/25 Page 12 of 20
statute, 11 U.S.C. § 349, does not impair a valid sale order. The Debtors counter that the
Bankruptcy Court did not err because the Sale Order “did not include any express
retention of jurisdiction to enforce [Paragraph 15] after dismissal,” (Doc. 11 at 10), and
enforcing Paragraph 15 would require the Bankruptcy Court to reassert jurisdiction over a
case that has been dismissed without a confirmed plan to enforce.
In relevant part, 11 U.S.C. § 349 states that “[u]nless the court, for cause, orders
otherwise, a dismissal of a case other than under section 742 of this title... vacates any
order, judgment, or transfer ordered, under section 522(i)(1), 542, 550, or 553 of this
title[.]” 11 U.S.C. § 349(b)(2). “The basic purpose of Section 349(b) is to undo the
bankruptcy case, as far as practicable, and to restore all property rights to the position in
which they were found at the commencement of the case.” In re Westgate Nursing
Homes, Inc., 518 B.R. 250, 255 (W.D.N.Y. 2014) (alteration adopted) (internal quotation
marks and citation omitted).
The House and Senate reports accompanying the Bankruptcy Reform Act of 1978,
which included § 349, provide:
Subsection (b) specifies that the dismissal reinstates proceedings or
custodianships that were superseded by the bankruptcy case, reinstates
avoided transfers, reinstates voided liens, vacates any order, judgment, or
transfer ordered as a result of the avoidance of a transfer, and revests the
property of the estate in the entity in which the property was vested at the
commencement of the case. The court is permitted to order a different result
for cause... . Where there is a question over the scope of the subsection,
the court will make the appropriate orders to protect rights acquired in
reliance on the bankruptcy case.
H.R. Rep. No. 95-595, 95th Cong. Ist Sess. 338 (1977); S. Rep. No. 95-989, 95th Cong.
2d Sess. 48-49 (1978) (emphasis supplied).
The Sale Order was entered pursuant to 11 U.S.C. § 363. “[A]ny statutory analysis
must always start with the clear meaning of the statute. If the meaning is clear[,] then the
[c]Jourt has no discretion but to follow the mandates as written by Congress.” Jn re
Rahman, 400 B.R. 362, 368 (E.D.N.Y. 2009) (internal quotation marks omitted). Because
§ 363 is not listed in § 349(b)(2), the Dismissal Order did not vacate the Sale Order,
12
2:25-cv-00088-cr Documenti3 Filed 09/29/25 Page 13 of 20
regardless of whether a plan was confirmed. See In re KG Winddown, LLC
(“Winddown’’), 628 B.R. 739, 749, 749 n.8 (S.D.N.Y. 2021) (recognizing that “[w]hile
section 363(m) applies only to an appeal from an order authorizing a sale, not generally
to any later challenge to such an order, it embodies a strong policy of finality of
bankruptcy sales,” and the sale order “would survive the bankruptcy case, regardless of
how the case concluded[]’”) (internal quotation marks and citations omitted). To the
extent the Bankruptcy Court opined the Dismissal Order rendered Paragraph 15 of the
Sale Order moot because no plan was confirmed and the case was dismissed, the
Bankruptcy Court erred in that conclusion.®
2. Whether the Bankruptcy Court Erred by Requiring the IRS to
Prove It Acquired Rights in Reliance on the Bankruptcy Case as
a Condition Precedent to Retaining Jurisdiction.
The Bankruptcy Court determined that “in order to [retain jurisdiction after a case
has been dismissed or closed to interpret or enforce previously entered orders] the Court
must first determine a right was actually acquired in reliance of the case.” (Doc. 1-2 at 6.)
The IRS argues that the Bankruptcy Court erred in this determination and it need not
establish that it acquired rights in reliance on the bankruptcy case in order to seek
enforcement of the Sale Order because, “[u]nder 11 U.S.C. § 349(b)(2), dismissal of a
Chapter 12 case only vacates orders or judgments entered pursuant to §§ 522(i)(1), 542,
550, or 553. As for other kinds of orders, simply put, bankruptcy courts retain jurisdiction
after a case has been dismissed or closed to interpret or enforce previously entered
orders.” (Doc. 10 at 21-22) (internal quotation marks and citations omitted). Accordingly,
“[nJo part of [the Sale Order] is automatically disturbed by dismissal and no exception to
such a disturbance need be shown.” /d. at 14 n.10.
The Debtors counter that the IRS was properly required to prove reliance on the
bankruptcy case because the Dismissal Order revested all property of the estate in the
Debtors, including the DFA funds. Thereafter, they contend the Bankruptcy Court did not
8 In footnote 13 of its opening brief (Doc. 10), the IRS cites a legitimate concern raised by an
unsecured creditor, Bourdeau Brothers, urging the Bankruptcy Court not to opine that it lacked
authority to enforce the Sale Order due to dismissal of the case. /d. at 29 n.13.
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have jurisdiction to interfere with former bankruptcy case assets “except to protect rights
acquired in reliance upon the bankruptcy [case].” (Doc. 11 at 14.) The IRS responds that
the DFA funds were not property of the Debtors’ estate because the Debtors claimed the
funds as exempt during the bankruptcy case and, as a result, the DFA funds never became
part of the estate either before or after the Dismissal Order.’ (Doc. 12 at 23.)
“(BJankruptcy courts retain jurisdiction after a case has been dismissed or closed
to interpret or enforce previously entered orders.” Jn re Park Ave. Garage, LLC, 403 F.
App’x 555, 556 n.2 (2d Cir. 2010) (citations omitted) (alteration in original); see also
Gulf Ins. Co. v. Glasbrenner, 343 B.R. 47, 56 (S.D.N.Y. 2006), aff'd sub nom. Gulf Ins.
Co. v. Caldor Corp., 273 F. App’x 90 (2d Cir. 2008) (“This Court has not found
additional authority supporting the proposition that the bankruptcy court lacks subject-
matter jurisdiction to enforce or nullify orders previously entered in a now-dismissed
bankruptcy case[.]”); Jn re Chateaugay Corp., 201 B.R. 48, 62 (Bankr. $.D.N.Y. 1996),
aff'd in part, 213 B.R. 633 (S.D.N.Y. 1997) (“Bankruptcy courts have inherent or
ancillary jurisdiction to interpret and enforce their own orders wholly independent of the
statutory grant of jurisdiction under 28 U.S.C. § 1334.”).
The court agrees with the IRS that the Bankruptcy Court erred in requiring the IRS
to establish that it acquired rights in reliance on the bankruptcy case in order to seek
enforcement of the Sale Order. Because the Dismissal Order did not vacate the Sale
Order under § 349(b)(2), as the Sale Order was not issued pursuant to the enumerated
sections thereunder, the Bankruptcy Court retained jurisdiction over the Sale Order
While the Debtors repeatedly claimed that the DFA profit-sharing account qualified for an
exemption in their Chapter 12 plans and the IRS repeatedly objected to this assertion, the
Bankruptcy Court did not make a final determination as to whether the DFA funds were exempt
because a plan was never confirmed. The IRS argues that “[s]ince the Debtors asserted an
exemption on the DFA Funds, unless an objection to that exemption was sustained, those funds
were not property of the estate.” (Doc. 12 at 23.) In the December 20, 2024 hearing, however,
the IRS conceded that the DFA funds were property of the estate and stated: “I well recognize
the property|, referring to the DFA funds,] to the extent practical goes and revests in the Debtors,
but there’s already an agreement that suggests that some of that property[,] [] as a benefit to the
IRS is being held . . . so that it can be assured that there is some protection that these taxes will
be paid.” (Doc. 2-33 at 14:19-25.)
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without the IRS first establishing it acquired rights in reliance on the bankruptcy case.
See Glasbrenner, 343 B.R. at 55 (citing 11 U.S.C. § 349(b)(2)) (“By its terms, section
349(b)(2) vacates only those orders entered pursuant to the enumerated sections,
specifically sections 522(i)(1), 542, 550, or 553.”).
Whether a bankruptcy court is always required, however, to retain jurisdiction
post-dismissal over any order that has not been vacated by 11 U.S.C. § 349(b)(2) is
unsettled. See Winddown, 628 B.R. at 748 (finding the bankruptcy court properly retained
jurisdiction to enforce a sale order because the sale order contained a clear statement that
the court retained jurisdiction). In the settlement context, a dismissal order must explicitly
retain jurisdiction in order for a bankruptcy court to enforce its terms post-settlement.
See, e.g., In re Valdez Fisheries Dev. Ass’n, Inc., 439 F.3d 545, 549 (9th Cir. 2006)
(citing Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 381 (1994)) (“Where a
settlement agreement led to the dismissal of a case, a court has jurisdiction to vindicate its
authority or effectuate its decree if the court’s dismissal order explicitly retained
jurisdiction or incorporated the terms of the settlement agreement.”); In re Ionosphere
Clubs, Inc., 262 B.R. 604, 613 (Bankr. $.D.N.Y. 2001) (finding the bankruptcy court
retained jurisdiction over post-settlement disputes because the confirmation order
provided that court would retain jurisdiction).
Winddown is instructive. There, the bankruptcy court considered the enforceability
of orders issued during the bankruptcy case, including a sale order that provided:
Notwithstanding section 349 of the Bankruptcy Code, all prior Orders of
this Court entered in the Chapter 11 Cases shall remain in full force and
effect and shall survive the dismissal of the Chapter 11 Cases, shall
continue in full force and effect and the Court retains jurisdiction to enforce
the same.
Inre KG Winddown, LLC, 628 B.R. at 748 (citation omitted). The U.S. Trustee took the
position that “the [s]ale [o]rder . .. would survive dismissal” under § 349, id., and the
only question was whether an exculpation provision would also survive it. In enforcing
the sale order as well as the exculpation provision contained therein, the Winddown court
reasoned:
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[T]he Supreme Court stated in [Czyzewski v.] Jevic [Holding Corporation]
that section 349(b) “appears designed to give courts the flexibility to ‘make
the appropriate orders to protect rights acquired in reliance on the
bankruptcy case.’” [580 U.S. 451, 466 (2017)] (quoting H.R. Rep. No. 95-
595 at 338). The exculpation of [the creditor] was almost certainly acquired
in reliance that the [s]ale [o]rder (including the exculpation) would survive
the bankruptcy case, regardless of how the case concluded. Therefore, the
exculpation appears to be precisely the kind of right that should be
protected through section 349(b), and should not be defeated by an
objection that could have been (but was not) brought before the exculpation
was originally granted.
Id. at 749. The Winddown court thus properly recognized that the sale order was not
subject to § 349(b), and the exculpation provision was acquired in reliance on the
bankruptcy case.
In this case, the Sale Order was not explicit as to whether Paragraph 15 requiring
the set-aside of the DFA funds to pay capital gains taxes would remain enforceable even
if all other assets of the Debtors were returned and a plan was not confirmed. Although
the Sale Order stated that “[t]he Court shall retain jurisdiction over the parties with
respect to this Sale Order, including any disputes arising hereunder[,]” (Doc. 2-18 at 13,
{ 18), it lacks the explicit language at issue in Winddown. For that reason, the Bankruptcy
Court was correct to seek evidence to discern the parties’ intent when they negotiated the
terms of the Sale Order. This conclusion is buttressed by the Chittendens’ statement in
presenting the proposed Sale Order to the Bankruptcy Court that “there’s a reticence
about proceeding with a plan, with a planned confirmation,” (Doc. 10 at 15) (quoting
Doc. 2-32 at 9:14-15), notwithstanding the Sale Order which clearly contemplated that
outcome.
3. Whether the Bankruptcy Court Abused Its Discretion in
Refusing to Clarify, Alter, or Amend the Dismissal Order.
The Sale Order was negotiated to allow the Debtors to sell real estate to their
family members, the Chittendens, and thereby overcome an array of objections from their
creditors. The IRS is correct that many provisions of the Sale Order are clear and
unambiguous. The court, however, must address the terms of the Sale Order as a whole to
determine if an ambiguity lies therein. See In re Stacey, 411 A.2d 1359, 1361 (Vt. 1980)
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(“In construing a contract, the contract provisions must be viewed in their entirety and
read together.”’) (citations omitted).
The Sale Order does not address what would happen if the Debtors sought
dismissal of their bankruptcy case after they achieved their desired sale of certain real
estate to the Chittendens. The Bankruptcy Court afforded the IRS an opportunity to
present evidence of its negotiations with the Debtors. In doing so, the IRS could have
established the parties’ intent with regard to the set-aside of the DFA funds in the event a
plan was not confirmed. The set-aside of the DFA funds was part of the sale process only
by virtue of the parties’ negotiations. In other words, an order for the sale of property
could, but need not, contain this type of provision.
The IRS declined the opportunity to present evidence and relied instead on the
plain language of the Sale Order. The problem with this approach was threefold. First, it
deprived the Bankruptcy Court of a factual record on which it could find that, even in the
absence of a confirmed plan, the parties’ intent was that the Debtors retained the
obligation to set aside the DFA funds.
Second, because the Sale Order recited the Debtors’ “good faith[,]” (Doc. 2-18 at
11, 4 7), the IRS failed to establish that the Debtors’ subsequent ex parte dismissal was in
bad faith. As the Bankruptcy Court noted, the IRS made “no showing of malicious intent
or bad faith on behalf of the Debtors[,]” (Doc. 1-2 at 7), even though “[b]ankruptcy
courts have exercised jurisdiction after dismissal in instances when doing so is required
to right a wrong — meaning evidence of bad faith would be an important consideration.”
Td.
And third, although the Sale Order states that there was adequate consideration, it
does not identify any separate consideration for the Debtors’ set-aside of the DFA funds.
This, in turn, left open the question of whether payment in full of the IRS’s secured claim
was the only consideration it expected to receive. In its briefs, the IRS cites the Debtors’
history of noncompliance with federal tax obligations, but the Sale Order contains no
recital to this effect. If all assets were to be returned to the Debtors in the event of
dismissal, the Sale Order does not address whether this includes the DFA funds. These
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issues, and others, could have been addressed in the evidentiary hearing which the IRS
declined.
Although the IRS argues the plain language of the Sale Order makes clear that the
Debtors had an unconditional obligation to pay the capital gains taxes when due,’ other
promises of the Sale Order were contingent upon the confirmation of a Chapter 12 plan.
See, e.g., Doc. 2-18 at 10, J 6-L (‘All remaining sale proceeds shall be turned over to the
Chapter 12 Trustee to hold pending confirmation of a Chapter 12 plan by the
Debtors[.]’””). The only ex parte dismissal contemplated by the Sale Order was one filed
by an aggrieved party. See id. at 12, 7 12 (“If either the Debtors and/or the Purchasers fail
to make any adequate protection payment as required herein, the Court, upon request of
an affected party may ex parte enter an Order dismissing the bankruptcy proceeding.”).
Under Vermont law, “[t]he question of whether a contract term is ambiguous is a
matter of law for the court to decide.” McLaughlin v. Langrock Sperry & Wool, LLP,
2021 WL 535873, at #10 (D. Vt. Feb. 12, 2021) (quoting /sbrandtsen v. N. Branch Corp.,
556 A.2d 81, 83 (Vt. 1988) (internal quotation marks omitted). “Ambiguity exists where
the disputed language will allow more than one reasonable interpretation.” /d. (citation
and internal quotation marks omitted).
The interpretation of an ambiguous contract provision “is a question of fact to be
determined on all the evidence, including extrinsic evidence, to determine the intent of
the contracting parties.” Jd. (quoting Mueller v. Mueller, 2012 VT 59, § 20, 192 Vt. 85,
93, 54 A.3d 168, 174) (internal quotation marks omitted). When an ambiguity exists,
““It]he cardinal principle in the construction of any contract is to give effect to the true
intention of the parties.’” Jenkins v. Miller, 2023 WL 11829728, at *2 (D. Vt. Aug. 16,
2023) (quoting Jn re Cronan, 563 A.2d 1316, 1317 (Vt. 1989)). As previously noted, to
effectuate the intent of the parties, “the contract provisions must be viewed in their
entirety and read together.” Jd. (quoting Jn re Stacey, 411 A.2d at 1361) (internal
quotation marks omitted).
'0 As the Bankruptcy Court observed, this obligation exists independent of the Sale Order.
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Paragraph 15 of the Sale Order directs Debtors to pay “[a]ny tax obligations due to
the United States arising from the sale of the Properties[,]” and “to hold and preserve, and
not dissipate or impair in any way, those funds held by [DFA] totaling $325,000[.]” (Doc.
2-18 at 12-13, § 15.) Paragraph 15 of the Sale Order does not condition its enforceability
on the filing or confirmation of a Chapter 12 plan. Although the Sale Order appears to
contemplate a plan, it does not require one. It does not address whether the obligation to
set aside the DFA funds was intended to survive the lack of a confirmed plan followed by
a dismissal. As the parties drafted the proposed Sale Order, they had every incentive to
address these contingencies. Under Vermont law, a court cannot revise the parties’
agreement in the guise of interpretation without first finding the revision reflects the
parties’ intent. See Whitney v. Vermont Mut. Ins. Co., 2015 VT 140, 4 16, 201 Vt. 29, 35,
135 A.3d 272, 277 (internal quotation marks and citation omitted) (“No court may
rewrite [] contractual terms to grant one party a better bargain than the one it made.”).
During the December 20, 2024 hearing on its Motion to Clarify, the IRS was
invited to offer extrinsic evidence to support a conclusion that “it would not have agreed
to the sale if not for inclusion of [Paragraph 15 of the Sale Order][.]” (Doc. 1-2 at 7.)
Instead, the IRS “fail[ed] to offer any evidence (beyond the language of the Sale Order)
to illustrate how it acquired this right.” /d. at 6. As a result, the Sale Order remains
ambiguous and the IRS was provided, but declined, an opportunity to clarify the parties’
intent. Against this backdrop, the Bankruptcy Court did not abuse its discretion in
refusing to clarify, alter, or amend the Dismissal Order to provide for enforcement of
Paragraph 15 of the Sale Order.'!
'! The IRS argues this result “sets a dangerous precedent within this District concerning the
enforceability of court orders and the terms of settlements among parties[]” because “debtors are
incentivized to agree to any protective terms requested by creditors in order to obtain whatever
desired event (such as a sale) or relief that benefits the debtors, and then use their absolute right
to dismiss the case thereafter to avoid compliance with any terms they find undesirable.” (Doc.
12 at 11.) This is a valid concern; however, it could have been addressed in the proposed Sale
Order. The IRS is not without recourse as it may file suit against the Debtors for breach of
contract. The Bankruptcy Court recognized this as well. See Doc. 1-2 at 6 (“The IRS is already
entitled to payment of the capital gains taxes as a matter of law and has every right to seek relief
outside of bankruptcy[.]’).
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CONCLUSION
For the reasons stated above, the court AFFIRMS IN PART the Bankruptcy
Court’s January 8, 2025 Order denying the IRS’s motion to clarify, alter, or amend. (Doc
1-4.)
SO ORDERED.
We
Dated at Burlington, in the District of Vermont, this 2 day of September, 2025.
Christina Reiss, Chief Judge
United States District Court
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