In re Fairchild Aircraft Corp.
| Decision Date | 05 April 1991 |
| Docket Number | Adv. No. 90-5269-C.,Bankruptcy No. 90-50257-C |
| Citation | 126 BR 717 |
| Parties | In re FAIRCHILD AIRCRAFT CORP., Debtor. Bettina M. WHYTE, Trustee, Plaintiff, v. GMF INVESTMENTS, INC. et al., Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Texas |
Deborah Williamson, San Antonio, Tex., for plaintiff.
Charles Ory, Dallas, Tex., for defendants.
DECISION AND ORDER ON MOTION OF PLAINTIFF TO STRIKE CROSS CLAIMS AND COUNTERCLAIMS
CAME ON for consideration the joint motion of Bettina M. Whyte ("Fiscal Agent/Trustee"), Merlin Express Inc. ("Merlin") and Fairchild Gen-Aero, Inc. ("Gen-Aero") to strike or dismiss the Counterclaims filed by GMF Investments, Inc. ("GMF"), Metro Aviation, Inc. ("Metro") and Morgan Spectrum, Inc. ("Morgan") (collectively referred to as "Defendants"). Upon consideration of the evidence presented, the arguments of counsel and the pleadings in the matter, the court enters this its decision disposing of these matters.
This Court has original subject matter jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and may enter a final order with respect thereto. 28 U.S.C. § 157(c)(2). This matter is a core proceeding. 28 U.S.C. §§ 157(b)(2)(A), (O).
There are a number of related entities that comprise GMF Investments, Inc. ("consolidated group"). Fairchild Aircraft Corporation ("Debtor"), Merlin and Gen-Aero, former subsidiaries of Debtor, were all part of this consolidated group. Merlin and Gen-Aero are now subsidiaries of Fairchild Acquisitions, Inc. Bettina Whyte was the Chapter 11 Trustee for the Debtor, whose plan was confirmed in September 1990. Ms. Whyte was appointed the Fiscal Agent under that plan. The Defendants Morgan and Metro are related entities to Defendant GMF Investments. As the common parent corporation, GMF in prior years filed consolidated federal income tax returns on behalf of all related entities, as permitted by 26 U.S.C. § 1501. There was no prior explicit agreement or understanding among the Debtor and the other related entities regarding the disposition of any tax refunds or the allocation of any losses resulting from the filing of the consolidated return.
On August 30, 1990 the Chapter 11 Trustee filed this Complaint to Determine Title to Tax Refunds and Application for Preliminary and Permanent Injunction. The original purpose of the Complaint was to safeguard certain tax refunds received and expected to be received from dissipation by other non-debtor entities which might assert an entitlement to all or a portion of these refunds (such as GMFI) and to determine title to such refunds. The estate has so far received two refund checks from the I.R.S. aggregating $1,709,867.00, both of which checks were made payable to "GMFI Investments, Inc. and Subs." Roughly $2,600,000.00 in total expected tax refunds due to the consolidated group is at issue.
Defendants counterclaim that the Trustee somehow conspired to "gain control" over the tax refunds at issue. Defendants assert that the 1989 return, prepared at the direction of the Trustee, misallocated the losses and the income between the various components of the GMF consolidated group and that, as a result, Defendants' entitlement to a share of the tax refunds was unfairly reduced.1 They further contend that the accounting for the various entities is incorrect and that such flaws will ultimately affect who gets the refund and may, in fact, result in I.R.S. penalties.2 The Defendants request that they get their rightful share of the present and future tax refunds and that they receive damages for the loss of interest income resulting from their not being able to immediately receive their portion of the tax refunds at issue.3 They further assert damages "suffered as a result of the Trustee's calculated actions," suggesting an intent on the part of the Trustee to harm other members of the consolidated group by the manner in which it prepared and filed the consolidated returns from which these refunds resulted. Defendants also request a determination "that they have no liability for any penalties and interest arising out of the 1988 and 1989 returns."
Defendants also assert a number of crossclaims against Deloitte-Touche (formerly known as Touche-Ross) and T. Charles Parr, a tax accountant with Deloitte-Touche. Deloitte-Touche prepared the tax returns in issue. Defendant claims that Mr. Parr and Deloitte-Touche have violated their duty of loyalty to GMF and have subjected them to potential liability out of the 1988, 1989 and 1990 tax returns. The relief requested is that these accountants be held liable for any penalties and interest as a result of the 1988, 1989 and 1990 tax returns and damages for this breach of loyalty. Neither of Parr nor Deloitte-Touche filed a motion to dismiss the crossclaims asserted against them and, accordingly, such these claims will not be addressed here.
A threshold issue is whether this court is the appropriate forum in which to determine the competing rights to this tax refund. Defendants charge that, because this is at bottom an action to recover money, this court lacks the subject matter jurisdiction to even entertain this action, or at the least, lacks the authority to enter final orders in this adversary proceeding. They also charge that this court lacks the authority to conduct the jury trial they have requested, because this is an action at law while this court is a court of equity which cannot conduct jury trials.4
A number of recent decisions have had little difficulty in finding that this court is indeed an appropriate forum in which to determine the competing rights of parties in a tax refund resulting from a consolidated return, where one of the parties is a debtor in bankruptcy. See In re Revco D.S., Inc., 111 B.R. 631 (Bankr.N.D.Ohio 1990), rev'd on other grounds, 898 F.2d 498 (6th Cir.1990) (); Matter of Florida Park Banks, Inc., 110 B.R. 986 (Bankr.M. D.Fla.1990) (); In re Prudential Lines, Inc., 107 B.R. 832 (Bankr.S.D.N.Y.1989) (); see also 28 U.S.C. §§ 1334(b), (d), 157(b)(2)(A); 11 U.S.C. §§ 505, 541. The bankruptcy court clearly has subject matter jurisdiction over questions involving property of the estate, including jurisdiction to decide respective entitlements to a given fund in which the estate asserts an interest. 28 U.S.C. § 1334(b); 11 U.S.C. § 541(a)(1); see also Matter of Wood, 825 F.2d 90, 93 (5th Cir.1987) (). The bankruptcy court might even have exclusive jurisdiction over the matter in question, because it involves control over property of a bankruptcy estate. See 28 U.S.C. § 1334(d). In all events, there can be little doubt that the courts which have so freely exercised their jurisdiction in cases such as this have been justified in doing so. Defendants' jurisdictional arguments are accordingly rejected.
The Fiscal Agent faces the potential of multiple liability. Each of the individual affiliates of GMF Investments, Inc. may assert competing and potentially inconsistent claims to the tax refunds in issue. Three affiliates, GMFI, Morgan Spectrum, and Metro Aviation, have done exactly that. One legitimate method for handling such situations is interpleader, to let a court determine the competing rights of the various parties.
The Fiscal Agent's complaint is, in essence, an interpleader action, though it is denominated a complaint for declaratory and injunctive relief. In fact, in the Joint Motion to Strike or Dismiss Counterclaims and Crossclaims, the Fiscal Agent characterizes her complaint as an effort to "interplead the tax refunds before the court...." An interpleader action is designed to protect a stakeholder from the possibility of multiple claims upon a single fund. See generally, Wright & Miller, Federal Civil Practice & Procedure § 1704 (1972); Maryland Casualty Company v. Glassell Taylor & Robinson, 156 F.2d 519 (5th Cir. 1946). The interpleader statute and rule are "liberally construed to protect the stakeholder from the expense of defending twice, as well as to protect him from double liability." New York Life Insurance Company v. Welch, 297 F.2d 787, 790 (D.C.Cir. 1961). The only real prerequisites to interpleader are the existence of a specific fund or property, and stakeholder's demonstrating present or potential subjection to adverse claims, Dunbar v. United States, 502 F.2d 506 (5th Cir.1974), resulting in exposure to double or multiple liability. Fulton v. Kaiser Steel Corp., 397 F.2d 580 (5th Cir.1968).
These conditions are met here.5 Because the basic goal of an interpleader action is to determine entitlements, it is functionally no different than an action for declaratory relief which asks the same question and seeks the same kind of answer. Morongo Band of Mission Indians v. California State Board of Equal., 849 F.2d 1197, 1203 (9th Cir.1988) (quoting Thomas v. Shelton, 740 F.2d 478, 485 (7th Cir.1984)) (the purpose of, and the procedural advantage provided by, an interpleader action may be the same as that of a declaratory judgment action — the actions "enable a defendant to precipitate a plaintiff's suit in order to avoid multiple liability or other inconvenience."). Nor does the fact...
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