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IN RE BOUSA

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

MEMORANDUM ORDER

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.

BACKGROUND*fn2

  I. Parties

  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. ยง 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. (Id.)

  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 ...


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