United States District Court, S.D. New York
June 13, 2005.
In re: BOUSA, INC. f/k/a BULK OIL (USA) INC., Debtor.
The opinion of the court was delivered by: PETER LEISURE, District Judge
The United States appeals to this Court for relief from an
Order denying its motion to offset its debt owed to Debtor,
BOUSA, Inc. ("BOUSA" or "Debtor") against the debt BOUSA owes to
the Government. The Order submitted for review was issued by
Judge Cornelius Blackshear of the United States Bankruptcy Court
for the Southern District of New York*fn1 on November 18,
2004. The Government sought relief from an automatic stay issued
when BOUSA filed its petition for bankruptcy protection pursuant
to Chapter 11 of the United States Bankruptcy Code on December
29, 1989. The Government was attempting to setoff allegedly
pre-petition debts owed by BOUSA to the Internal Revenue Service
("IRS"), the Environmental Protection Agency ("EPA"), and the,
then United States Customs Service, now, Department of Homeland
Security, U.S. Customs and Border Protection ("Customs"). The
Government planned to setoff BOUSA's debts against the debts that
the United States Court of International Trade ("CIT") found the
Government owed to BOUSA, arising from Customs' misclassification
of BOUSA's tariff obligations on two shipments of petroleum
products BOUSA imported in 1985 and 1986. CIT found the
Government owed BOUSA $4,361,473.18 plus statutory interest
running from the date of Custom's mistaken tariff entry. The
Government has paid $2,384,298.66 to date, but is holding the remainder in abeyance
in the hopes of exercising a setoff of the $1,571,426.63 debt
owed by BOUSA to the Government. The Court details the facts of
this appeal below and remands this proceeding back to the
Bankruptcy Court for findings of fact and conclusions of law
sufficient to effect an appeal of that Court's denial of the
Government's motion to lift the stay and effect a set off.
The Government, as appellant in this matter, acts on behalf of
three separate agencies, EPA, IRS, and Customs.
BOUSA is a New York corporation that imported petroleum
products into the United States. See In re Bousa,
209 B.R. 29, 29 (S.D.N.Y. 1997) (Leisure, J.). Prior to filing for
bankruptcy protection, BOUSA had annual sales of over
$500,000,000 from its trading and marketing of liquid petroleum.
(Disclosure Statement and Liquidating Plan of Reorganization of
BOUSA, Inc., Affidavit of Kevin G.W. Olson, Esq., dated Apr. 28,
2004 ("Olson Aff.") Ex. J at 5.) BOUSA was forced to file for
bankruptcy protection in the wake of falling oil prices,
creditors' claims of over $400,000,000, and BOUSA's European
affiliates' financial hardships. Id. BOUSA filed for Chapter 11
protection on December 29, 1989.
II. BOUSA's Debts to the Government
The IRS, EPA, and Customs all filed proofs of claim with the
Bankruptcy Court handling BOUSA's Chapter 11 petition, for debts
arising out of unrelated transactions. A. Debt to the EPA
On October 5, 1990, the EPA filed a proof of claim with the
Bankruptcy Court for an unsecured nonpriority claim of $536,250.
(Olson Aff. Ex. I.) The EPA noted on an attached Rider that the
claim would satisfy the outstanding balance of BOUSA's liability
arising out of a settlement agreement with the EPA for violating
Section 211 of the Clean Air Act, 42 U.S.C. § 7545(c). (Id.)
BOUSA and the EPA entered into the settlement agreement on
December 15, 1987. (Id. Ex. J at 5.) The EPA Settlement
Agreement detailed BOUSA's environmental failings in 1985 through
1986 and obligated BOUSA to remit $1,175,000 in semi-yearly
installments to be completed on December 31, 1990. (Id. at 3.)
However, because BOUSA filed for bankruptcy protection on
December 29, 1989, it did not complete the payments.
B. Debt to the IRS
On August 16, 1993, the IRS filed a proof of claim with the
Bankruptcy Court for a priority amount of $148,420.24 and a
general amount of $4,261.53, totaling $152,681.77. The IRS's
claim estimated BOUSA's liability for failure to file tax returns
covering dates in 1988 and 1999. (Id. Ex. G.) The IRS Claim
states that it is not subject to any set off or counterclaim.
C. Debt to Customs
On April 26, 1990, Customs filed a proof of claim for an
unsecured and unidentified amount.*fn3 On January 28,
1992,*fn4 Customs entered an amended proof of claim for a
unsecured nonpriority claim of $882,494.86. (Vargas Decl. June 7, 2004 Ex.
A.) The claim arose out of BOUSA's failure to pay Customs duties
imposed on eight shipments of petroleum products and interest on
III. BOUSA's Liquidation Plan and First Customs Litigation
On May 24, 1995, BOUSA initiated litigation against Customs
regarding the tariff classification of six of the eight entries
mentioned above. (Id. Ex. B.) This Court withdrew the reference
to the Bankruptcy Court of that litigation, and a motion to amend
the complaint is currently pending before this Court. (Id. Ex.
On July 31, 1995, the Bankruptcy Court approved BOUSA's Plan
for liquidation and reorganization. (Olson Decl. Ex. L.) The IRS
withdrew its objection to the Plan by stipulation, stating that,
because it appeared BOUSA would be unable to satisfy its debt to
the IRS unless it recovered in a separate litigation, described
infra Part IV., it would not object so long as the proceeds of
that litigation went toward the IRS debt. (See id. Ex. K.)
IV. Government's Debt to BOUSA CIT Litigation
On April 21, 2003, the CIT entered judgment for BOUSA against
Customs regarding import duties assessed by Customs and paid by
BOUSA in 1986 and 1987, granting BOUSA a refund of $4,361,473.18.
Bousa, Inc. v. United States, No. 90-12-00658 (Ct. Int'l Trade
Apr. 21, 2003). Customs paid BOUSA $2,384,298.66 on August 25,
2003 (Declaration of Bruce W. Ingalls, attached to Government's
Notice of Motion, dated February 13, 2004, ¶ 5), but has held the
remainder, $1,977,174.52, "in abeyance" pending disposition of
its motion to lift the stay and effect a set off (Gov. Mem. at 7). V. Government's Motion to Lift the Stay and Effect a Setoff
The EPA and IRS filed motions with the Bankruptcy Court for
relief from the automatic stay on February 13, 2004. Customs'
motion followed on June 7, 2004. The Bankruptcy Court
consolidated the motions and heard oral argument on October 27,
2004. The Bankruptcy Court did not clearly identify any findings
of fact or conclusions of law in denying the Government's
motions. At the hearing, the Government argued for relief from
the stay pursuant to 11 U.S.C. § 362(d)(1). (Transcript of Oral
Argument, dated October 27, 2004 ("Tr.") at 29.) However, this
statute allegedly justifying relief was mentioned only in
passing, as the parties focused on whether the Government had
waived its right to setoff by failing to assert their alleged
right earlier in the tortured history of BOUSA's bankruptcy,
District Court, and CIT proceedings. BOUSA also argued that the
Government had violated the automatic stay by withholding the
balance of the CIT action "in abeyance." (See Tr. at 8; BOUSA's
Opp'n at 26-27.) Relying on the Supreme Court's decision in
Citizens Bank of Md. v. Strumpf, 516 U.S. 16, 20 (1995), the
Government argued that its actions did not improperly effect a
setoff as the Government did not intend to effect a setoff, no
actions were taken to so effect, and there were no records of a
setoff. (Tr. 12-13.) In a rare tip of its hand, the Bankruptcy
Court indicated that it was disinclined to follow controlling
Supreme Court caselaw, instead hinting it would distinguish
Strumpf from the facts at hand. (Tr. 13-16.) The Bankruptcy
Court did appear to conclude that the Government was proceeding
as an unsecured creditor. (Tr. 35-37.) However, that lone finding
is of no moment here, as it is unopposed by the Government and
not the subject of this appeal.
Following the parties' arguments, Judge Blackshear ruled that
the Government's motion was denied and reserved the right to
issue a written opinion if any party appealed his ruling. The
Government filed a timely appeal on November 29, 2004. The only
written memorialization of Judge Blackshear's denial of the Government's motions was issued
on November 18, 2004, and stated that, upon consideration of the
parties briefs, pleadings, exhibits, and oral argument, "pursuant
to the Court's rulings stated on the record in open court with
respect to the Government's Motions," those motions were denied.
(Bankruptcy Court's Order dated November 18, 2004.)
Federal Rule of Bankruptcy Procedure 8013 frames this Court's
review of the Bankruptcy Court decision: "[T]he district court . . .
may affirm, modify, or reverse a bankruptcy judge's judgment,
order, or decree or remand with instructions for further
proceedings. Findings of fact . . . shall not be set aside unless
clearly erroneous." Fed.R.Bankr.P. 8013. Conclusions of law or
conclusions of mixed law and fact are reviewed de novo. In re
Adelphia Communs. Corp., 298 B.R. 49, 52 (S.D.N.Y. 2003). But,
"[a] bankruptcy judge's decision to lift an automatic stay is
review able only for an abuse of discretion.
`Reviewable-for-abuse-of-discretion, however, does not mean
unreviewable.'" Stoltz v. Brattleboro Hous. Auth.,
259 B.R. 255, 258 (D. Vt. 2001) (quoting Mazzeo v. Lennard (In re
Mazzeo), 167 F.3d 139, 142 (2d Cir. 1999)); see also In re
Adelphia, 298 B.R. at 52. The Second Circuit reviews this
Court's appellate analysis of a Bankruptcy Court's decision de
novo, "mindful that the original decision to lift the stay may
be overturned only for an abuse of discretion." Schneiderman v.
Bogdanovich (In re Bogdanovich), 292 F.3d 104, 109 (2d Cir.
2002) (citation omitted).
A Bankruptcy Court Order denying a request for relief from an
automatic stay, such as the one at issue here, is governed by
Federal Rule of Civil Procedure 52(a). Mazzeo, 167 F.3d at 142.
Rule 52(a) requires that:
in all actions tried upon the facts without a
jury . . ., the court shall find the facts specially
and state separately its conclusions of law
thereon. . . . It will be sufficient if the findings of fact and conclusions of
law are stated orally and recorded in open court . . .
or appear in an opinion or memorandum of decision
filed by the court.
Fed.R.Civ.P. 52(a). While the court need not "include
punctilious detail," its findings of fact and conclusions of law
must be sufficiently detailed to allow for "meaningful appellate
review." Mazzeo, 167 F.3d at 142. "[W]here such findings and
conclusions are lacking, we may vacate and remand." Id.
A court's determination of whether it should lift a stay for
cause under 11 U.S.C. § 362(d)(1) is a fact specific inquiry
governed by the twelve factors laid out in Sonnax v.
Tricomponent Prod. Corp (In re Sonnax Indus., Inc.),
907 F.2d 1280, 1286 (2d Cir. 1995). While not all of the factors will be
relevant in every case, and certainly not all will be relevant in
the instant procedurally distinct matter, where the bankruptcy
court fails to "mention Sonnax, or any doctrinal framework, and
it is unclear whether that court considered any of the Sonnax
factors," the reviewing court should vacate and remand for
further findings. Mazzeo, 167 F.3d at 143; see also Sinatra
v. Gucci (In re Gucci), 309 B.R. 679, 685 (S.D.N.Y. 2004)
(vacating and remanding where, though the bankruptcy court's
grant of plaintiff's sought relief implicitly rejected
defendant's defense of laches, that court did not discuss the
defense or its elements); B.N. Realty Assocs. v. Lichtenstein,
238 B.R. 249, 253 (S.D.N.Y. 1999) (vacating and remanding because
"[t]he issue of whether to lift the [automatic] stay requires a
factual determination based on a number of factors which
according to the record of the proceedings below was not
undertaken"); cf. In re Godt, 282 B.R. 577, 584-585 (S.D.N.Y.
2002) (distinguishing the bankruptcy court's oral ruling from
Mazzeo where "the Bankruptcy Court referred to the Sonnax
factors and noted the relevant factors applicable to the
motion"). Unfortunately, here, the Court is faced with a complete lack of
identifiable reasoning in the underlying decision from the
Bankruptcy Court. This cannot support a meaningful review of its
decision for it does not meet the bare minimum obligation that
the Bankruptcy Court "make brief, definite, and pertinent
findings and conclusions upon contested matters." Mazzeo,
167 F.3d at 142. It is troubling that the Bankruptcy Court alluded to
its inclination to disregard Supreme Court caselaw, however, as
that line of reasoning was abandoned without resolution, the
Court cannot determine the Bankruptcy Court's meaning. In sum,
this Court simply has nothing to review and must vacate and
remand for further findings. It would be error to do otherwise.
See id. at 143 (vacating the district court's affirmation of
the bankruptcy court's order where based on insufficient findings
to support meaningful appellate review). Thus, the Court renders
no opinion regarding the merit of the Government's motions but
rather must await the Bankruptcy Court's rationale before
disposing of an appeal, should one be taken after further
Because the Bankruptcy Court did not provide sufficient
findings of fact or conclusions of law in order to warrant
meaningful appellate review of its denial of the Government's
motions to lift the automatic stay and effect a setoff, this
Court vacates the Bankruptcy Court's Order and remands for