Cooper v. U.S.
| Decision Date | 21 January 2005 |
| Docket Number | No. CIV.A.3:97CV502.,CIV.A.3:97CV502. |
| Citation | 362 F.Supp.2d 649 |
| Court | U.S. District Court — Western District of North Carolina |
| Parties | Langdon M. COOPER, Trustee in Bankruptcy for Ralph W. Rogers, Plaintiff, v. UNITED STATES of America, Defendant. |
Stephen Andrew Jurs, Charlotte, NC, Nancy B. Paschall, Gastonia, NC, for Plaintiff.
James M. Sullivan, Assistant, Charlotte, NC, Lawrence P. Blaskopf, Washington, DC, for Defendant.
THIS MATTER is before the Court upon the Plaintiff's November 24, 2004 "Motion for Summary Judgment" (Document # 103) and Defendant's December 13, 2004 "Cross-Motion for Summary Judgment" (Document # 107). Defendant responded to Plaintiff's Motion on December 13, 2004. Plaintiff both filed a Reply to Defendant's Response and responded to Defendant's Motion on December 21, 2004. Therefore, the matters are ripe for consideration by the Court.
On April 12, 1988, Mr. Ralph Rogers ("Debtor") sold his stock in Bio-Ecological Services. Inc ("BES") to Waste Management of N.C. for $4,120,000 cash and an employment agreement worth an additional $1,900,000. Prior to the sale, Debtor arranged for Mr. William Deytens, a shareholder in BES, to redeem his BES shares. In 1989, Deytens and Waste Management instituted separate and distinct actions against Debtor arising out of the BES sale.
Deytens filed suit in federal district court in S.C. alleging fraud, violations of securities laws and breach of fiduciary duty in setting up the stock redemption. The district court awarded Deytens a $1,550,806 judgement. The judgment was later cancelled pursuant to the Global Settlement Agreement entered into by Detyens, Mr. Rogers, Mr. Rogers wife, Sharon, and the companies. The Global Settlement releases all parties from any liabilities, claims, causes of action, liens, recoveries, etc. from any other party.
Waste Management filed suit in this court alleging breach of employment agreement, stock purchase agreement, fiduciary duty, and securities fraud and constructive fraud. However, Waste Management dismissed that case in favor of the Global Settlement Agreement voluntarily entered into by the parties, and later approved by the Bankruptcy Court.
On January 12, 1993, Debtor filed a voluntary Chapter 7 Bankruptcy petition. In April 1993, Waste Management and Deytens separately filed Complaints to deny the debtor's discharge.
On August 24, 1994, the Bankruptcy Court entered the order approving the Global Settlement. Under the Settlement, Deytens, Waste Management and Debtor agreed to release all past and future claims arising out of the sale of BES and subsequent litigation. However, as an exception to the general release, Deytens and Waste Management maintained their proof of claims in Debtor's bankruptcy. Furthermore, the Global Settlement required Debtor and his wife to turn over specified properties to Langdon Cooper, a bankruptcy trustee ("Trustee"), including all tax refunds due to either. To date, the Trustee has converted the property into $1,026,105 for the benefit of the Debtor's creditors, and has distributed $741,248.53 to Deytens and Waste Management.
Based on Debtor's repayment of $1,026,105 (in cash and assets liquidated by the trustee) to Debtor's bankruptcy estate, in March 1996 Trustee filed a form 1041, a Fiduciary Income Tax Return, on behalf of the Debtor's bankruptcy estate for the 1994 tax year. Trustee claims the bankruptcy estate is entitled to a $287,309 refund (tax paid on $1,026,105 pursuant to the claim of right doctrine) pursuant to 26 U.S.C. § 1341. On January 7, 1997, Internal Revenue Service denied the Trustee's claim. On September 23, 1997, the Trustee commenced the instant action. (Claim I).
In tax year 1991 Mr. Rogers and his wife incurred a net operating loss of $74,324. In 1992 Debtor and his wife incurred a net operating loss equal to $180,154. Thus, on March 11, 1996, the bankruptcy trustee also filed amended returns for tax years 1988 and 1989, carrying back the net operating losses incurred in years 1991 and 1992, pursuant to I.R.C. § 172, which authorizes taxpayers to carry back net operating losses "to each of the two taxable years preceding the taxable year of such loss." Had the deductions been allowed, the debtor would have received total tax refunds of $71,814. However, on January 7, 1997, Internal Revenue denied all of Trustee's refund claims. Therefore, Trustee commenced the instant action, claiming that the debtor is entitled to refunds of $21,371 for 1988 (Claim II) and $50,443 for 1989 (Claim III).
Trustee commenced the instant action on September 23, 1997 after the Internal Revenue Service (IRS) denied the Trustee's claims to overpaid taxes. The government sought dismissal of Claim II on December 1, 1997, asserting that the claim was barred by the statute of limitations.1 26 U.S.C. § 6511(a). However, the Court found that the claim was in fact not barred, as the suit had been timely filed.2
On October 31, 2000, District Court Judge Voorhees denied Defendant's Motion to Dismiss Counts I and II. The Court denied Defendant's Motion to Dismiss Court II, because the defendant essentially reiterated its statute of limitations argument already disposed of in the previous Order denying dismissal. The Court refused to dismiss Count I because of a lack of legal authority supporting either side's arguments.
On May 24, 2004, this Court entered an Order asserting that bankruptcy trustees do have standing to assert entitlement to claim of right refunds on behalf of debtors and for the benefit of the estate creditors under Internal Revenue Code (IRC) § 1341, regardless of § 1341's absence from IRC § 1398, which lists the tax attributes to which a bankruptcy estate succeeds.
Thereafter, the defendant filed a motion in limine seeking to exclude evidence of the debtor's wife's portion of the 1988 and 1989 refund claims. The Court denied the government's motion on the grounds that the Anti-Assignment Act does not apply to prohibit assignment of claims against the United States where a transfer occurred by operation of law. In this case, the Bankruptcy Court entered an Order on April 15, 1996, which directed the IRS to deliver to the Trustee any tax refund checks for taxable years ending on or before the date of Debtor's filing for Chapter 7 bankruptcy. In its Order, the Bankruptcy Court stated that such order was pursuant "to the settlement agreement approved by [the] court that the Trustee is entitled to any tax refunds the estate may receive from years when Ralph and Sharon Rogers filed joint tax returns." Thus, this Court found that such approval of the Bankruptcy Court of the settlement agreement, in conjunction with the April 15, 1996 Order directing the IRS to deliver refund checks directly to the Trustee, evinced a transfer by operation of law.
In August of 2004, the government filed a Proffer of Evidence of Fraud, pursuant to the Court's July 16, 2004 Order. Plaintiff trustee responded on October 12, 2004, and contemporaneously filed a Motion to Reopen Time for Filing Dispositive Motions. The Court granted Plaintiff's motion on October 27, 2004.
Rule 56(c) of the Federal Rules of Civil Procedure allows a ruling of summary judgment where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202, (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine issue exists only if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. But the party opposing summary judgment may not rest upon mere allegations or denials, and a "mere scintilla of evidence" is insufficient to overcome summary judgment. Id. at 249-50, 106 S.Ct. 2505.
Courts, in considering motions for summary judgment, view the facts and inferences in light most favorable to the party opposing the motion. See id. at 255, 106 S.Ct. 2505; Miltier v. Beorn, 896 F.2d 848 (4th Cir.1990); Cole v. Cole, 633 F.2d 1083 (4th Cir.1980). Summary judgment is thus proper where "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there [being] no genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (internal quotations omitted).
Plaintiff moves the Court to enter summary judgment in his favor on all claims pursuant to Federal Rule of Civil Procedure 56(c), as, he claims, no genuine issue of material fact is in dispute for which a jury trial is needed. Defendant filed a cross-motion for summary judgment, and thus seeks summary relief in its favor as to Count I.
The Claim of Right Doctrine originated with the Supreme Court decision North American Oil Consolidated v. Burnet, 286 U.S. 417, 52 S.Ct. 613, 76 L.Ed. 1197 (1932). Essentially, the claim of right doctrine holds that if a taxpayer receives income under a "claim of right and without restriction as to its disposition," the taxpayer must report that amount on her tax return in the year she received such income. Id. at 424, 52 S.Ct. 613. The claim of right doctrine applies whether or not the taxpayer is later required to repay the sum. However, a taxpayer who later refunds (or becomes obligated to refund) the amount is entitled to a deduction in the year of repayment. See Dominion Resources, Inc. v. U.S., 219 F.3d 359 (4th Cir.2000).
Section 1341 of the Internal Revenue Code was enacted to provide a remedy to those who are entitled to a deduction because of such a refund, but...
To continue reading
Request your trial
-
Robb Evans & Assocs., LLC v. United States
...the purpose of the fraud exception to recovery under [section] 1341." Rob Evans , 9 F.Supp.3d at 169–70 (citing Cooper v. United States , 362 F.Supp.2d 649, 656 (W.D.N.C. 2005) ). This asseveration relies almost exclusively on the decision in Cooper , a case similarly configured but arising......
-
In re Art & Architecture Books of 21st Century
...innocent creditors."), citing inter alia, In re Personal & Business Insurance Agency, 334 F.3d at 246-247 and Cooper v. United States, 362 F.Supp.2d 649, 656 (W.D.N.C. 2005)("Imputing the bad acts of the debtor onto the bankruptcy trustee in the present casePage 33 renders a categorically i......
-
Rob Evans & Assocs., LLC v. United States
...Puccios, is precluded from recovering a refund.Like Judge Neiman, this court is persuaded by the logic of Cooper v. United States, 362 F.Supp.2d 649 (W.D.N.C.2005), that the fraudulent conduct of the Puccios should not be imputed to Plaintiff, who is tasked with recovering funds for the vic......