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In Re Agway, Inc v. Internal Revenue Service

August 5, 2011

IN RE AGWAY, INC., DEBTOR. D. CLARK OGLE, LIQUIDATING TRUSTEE OF THE AGWAY LIQUIDATING TRUST, APPELLANT,
v.
INTERNAL REVENUE SERVICE, APPELLEE



The opinion of the court was delivered by: David N. Hurd United States District Judge

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION

On March 8, 2011, the United States Bankruptcy Court for the Northern District of New York ("the Bankruptcy Court"), Honorable Diane Davis, United States Bankruptcy Judge, denied the Liquidating Trustee's ("the LT") motion to determine tax liability seeking an order pursuant to 11 U.S.C. § 505(a) declaring that excise and income taxes reported by Agway, Inc. and several of its subsidiaries (collectively, "the debtors") were accurate, and pursuant to 11 U.S.C. § 505(b) that the LT, the debtors, and the Agway Liquidating Trust ("Liquidating Trust") be discharged from liability for such taxes. In re Agway, Inc., 412 B.R. 32 (Bankr. N.D.N.Y. 2009), rev'd sub nom. Oglev.Internal Revenue Serv. (In re Agway, Inc.), 447 B.R. 91 (N.D.N.Y. 2011).

The LT appealed, and the Bankruptcy Court's decision was reversed. The United States ("the government") moved for rehearing pursuant to Bankruptcy Rule 8015. The motion was taken on submission without oral argument.

II. FACTS

On October 1, 2002, the debtors filed for bankruptcy protection pursuant to Chapter 11 of the Bankruptcy Code ("the Code"). The debtors' Plan of Liquidation (the "Plan") was confirmed on April 28, 2004, and became effective May 1, 2004. D. Clark Ogle was appointed as the LT. The LT set aside $5,000,000 to be used for any tax liability the Liquidating Trust should incur.

The Plan provided that the LT "may request an expedited determination of taxes of the Liquidating Trust . . . under section 505(b) of the Bankruptcy Code for all returns filed for, or on behalf of, the Liquidating Trusts for all taxable periods through dissolution of theLiquidating Trust." Plan, § 7.01(f).*fn1 The Plan further provided that the Bankruptcy Court would maintain jurisdiction to determine matters under § 505 for all taxable periods through the termination of the Liquidating Trust. Plan, Art. XIII(q).

Although the debtors' Retirement Plan was to be terminated May 31, 2004, a strategy was devised to preserve the Retirement Plan where sponsorship was to be transferred to an independent company allowing for continuation of the Retirement Plan (the "transaction"). The LT moved to transfer sponsorship of the Retirement Plan without opposition. On October 1, 2007, the Bankruptcy Court granted the motion, and the transaction was completed on June 6, 2008. On July 11, 2008, the debtors filed a Form 5330 with the Internal Revenue Service ("IRS"), reporting zero dollars of excise tax liability related to the transaction. On September 15, 2008, the debtors filed a Form 1120-C with the IRS, reporting an income tax liability of $385,693 resulting from the transaction. The LT requested an expedited determination regarding the reported tax liabilities by the IRS, however, the IRS did not respond to the request or object to the reports. The LT filed a motion to determine tax liability with the Bankruptcy Court pursuant to 11 U.S.C. § 505.*fn2 The Bankruptcy Court held that because the IRS had not expressed any disagreement with the reported tax liabilities there was no actual controversy over which it had subject matter jurisdiction to determine tax liability for the debtors. In re Agway, Inc., 412 B.R. 32 (Bankr. N.D.N.Y. 2009). The Bankruptcy Court denied the LT's motion. Id.

Following the decision, the LT appealed. On March 8, 2011, the Bankruptcy Court's decision was reversed. Ogle, 447 B.R. at 96. Because the IRS did not cross-appeal, its arguments regarding Article III case or controversy, lack of controversy under the Declaratory Judgment Act ("DJA"), 28 U.S.C. § 2201, and exceeding the government's waiver of sovereign immunity were not addressed in the March 8, 2011, decision. Id. at 92 n.

2. The government then filed this motion for a rehearing regarding those issues.

III. DISCUSSION

A. Standard of Review

Federal Rule of Bankruptcy Procedure 8015 allows parties to file a motion for rehearing within fourteen days after the judgment by the district court or bankruptcy appellate panel. Rule 8015, however, does not provide the standard for evaluating a motion for rehearing. Fed. R. Bankr. P. 8015 (2006). Because the rule is derived from Federal Rule of Appellate Procedure 40(a), one may look to that rule for guidance.*fn3 In re BuddyUSA, Inc., 2010 WL 1539720, at *1. Rule 40(a) states in relevant part, "[t]he petition [for rehearing] must state with particularity each point of law or fact that the petitioner believes the court has overlooked or misapprehended and must argue in support of the petition." Fed. R. App. P. 40(a)(2) (2006). "The function of a petition for rehearing is not to permit the petitioner to reargue his ...


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