In re Pullman Const. Industries, Inc.
| Decision Date | 02 January 1996 |
| Docket Number | Bankruptcy No. 87 B 06441-44. Adv. No. 92 A 00015. |
| Parties | In re PULLMAN CONSTRUCTION INDUSTRIES, INC., et al., Debtors. PULLMAN CONSTRUCTION INDUSTRIES, INC., Plaintiff, v. UNITED STATES of America and State of Illinois, Dept. of Revenue, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Stephen T. Bobo, D'Ancona & Pflaum, Chicago, IL, for Plaintiff Debtor Pullman.
Charles J. Cannon, Trial Attorney, Tax Div., U.S. Dept. of Justice, Washington, D.C., and Joel Nathan, Special Assistant U.S. Attorney, Chicago, IL, for Defendant United States.
AMENDMENT TO CONCLUSIONS OF LAW ENTERED ON PLAINTIFF'S MOTION TO AMEND JUDGMENT
On May 1, 1987, Pullman Construction Industries, Inc. and three wholly-owned subsidiaries (collectively "Pullman" or "Debtor") filed petitions for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. Their cases were jointly administered. Pullman administered its affairs as debtor-in-possession pursuant to 11 U.S.C. §§ 1107-08.
Pullman filed this two-count Adversary Complaint, seeking to recover certain allegedly preferential payments Pullman made to the IRS pre-bankruptcy, ultimately reducing its claim to $610,143.64.1 The case was tried and judgment entered for the United States on August 20, 1995.
Pullman timely moved to alter or amend that judgment. The motion is based on asserted error of law contained in the Conclusions of Law on which the judgment rested. Having reviewed the briefs filed by the parties on this motion, the following Amendment to Conclusions of Law is hereby entered. Pursuant thereto and by separate order, an amended judgment will be entered in favor of Pullman and against the United States in the amount of $99,147.44 without interest, and all other relief sought by Plaintiff is denied.
Extensive Findings of Fact were made earlier following trial in this Adversary proceeding. See In re Pullman Constr. Indus., Inc., 186 B.R. 88 (Bankr.N.D.Ill.1995) (Schmetterer, J.) ("Pullman"). As no error of fact therein has been asserted, those Findings of Fact are readopted. Any factual findings referred to herein that are not contained in the earlier Findings will stand as additional Findings of Fact.
Prior to filing in bankruptcy, Pullman employed 595 people and was required to deduct and withhold income and social security taxes from gross wages earned by its employees. Pullman, 186 B.R. at 91; 26 U.S.C. §§ 3102(a) (1987).2 Pullman was required to deposit these taxes in "a special fund in trust for the United States." 26 U.S.C. § 7501 (1987). Thus, these taxes are commonly known as "trust fund taxes." See Begier v. Internal Revenue Serv., 496 U.S. 53, 55-56, 110 S.Ct. 2258, 2261, 110 L.Ed.2d 46 (1990). In addition, Pullman was required to pay various other taxes, including its share of social security taxes. See 26 U.S.C. § 3111(a) (1987). Unlike withholding taxes, however, these funds are not held in trust for the United States and are referred to as "non-trust fund taxes." Pullman, 186 B.R. at 91. Nonetheless, Pullman was required to deposit its share of social security taxes into a bank account along with trust fund taxes, pursuant to § 6302 of the 1987 Internal Revenue Code. 26 C.F.R. § 31.6302(c)-1 (1987).
Pullman was obliged under the law to deposit its taxes with a qualified federal tax depository institution shortly after each payroll was made. The required taxes as defined by the Tax Code included the employer's share of § 3111 social security taxes. 26 C.F.R. § 31.6302(c)-1(a)(1)(iii) (1987).3 Tax deposits associated with each payroll were required to be made within three banking days after the end of each one-eighth month period in which the payroll was issued, 26 C.F.R. § 31.6302(c)-1 (1987), unless tax liability equaled or exceeded $100,000.00 for the period, in which case Pullman was required to deposit such taxes within one banking day after the payroll was made. 26 C.F.R. § 31.6302(c)-1 (1987). Pullman, 186 B.R. at 91. If an employer failed to make such deposits in a timely fashion, the IRS was authorized to assess a 10% failure-to-deposit penalty unless the failure was shown to be due to reasonable cause. 26 U.S.C. § 6656(a) (1987); 26 C.F.R. § 301.6656-1 (1987).
In late 1986 and early 1987, Pullman experienced severe cash flow shortages and operating losses that would eventually snowball into financial collapse. By February 1, 1987, 90 days before filing in bankruptcy, Pullman had fallen behind in making its required deposits of trust fund taxes for the first quarter of 1987. Pullman, 186 B.R. at 92. During the 90 days prior to May 1, 1987, the date Pullman filed its bankruptcy petition, Pullman sent eight checks, totaling $1,031,790.64, directly to the IRS. Id.
The United States filed an amended claim against the Pullman estate which reflects penalties in the amount of $165,868.89 assessed against Pullman in connection with its failure to timely deposit federal employment taxes. Id. at 95. Prior to the fourth quarter of 1986, Pullman had fully paid its federal employment taxes and did not incur penalties and interest with respect to those taxes. Id.
As set forth in the Findings entered earlier herein, out of the first three checks sent by Pullman to the IRS during the 90 days prior to bankruptcy, $99,197.44 was allocable to non-trust fund taxes. Id. at 94. The fourth payment sought to be recovered by Pullman was the payment of $50,000.00 made by Pullman to the IRS. This amount did not correlate to the amount of any particular tax deposit that Pullman had failed to make and was not listed on Pullman's tax return for the first quarter of 1987. The remaining payments were found to be trust fund taxes and the rulings thereon were not questioned by the pending motion. Id. at 96-97.
It was earlier held herein that Pullman did not establish by a preponderance of the evidence that it paid $149,197.44 in non-trust taxes on account of antecedent debts, as required by 11 U.S.C. § 547(b)(2). Id. That opinion looked to § 547(a), which states that for preference purposes, "a debt for a tax is incurred on the day when such tax is last payable without penalty, including any extension." 11 U.S.C. § 547(a). Thus, to recover under § 547(b), Pullman needed to demonstrate that the taxes satisfied by transfer of the $149,197.44 were "last payable without penalty" before the payments were made. Id. at 98. It was earlier concluded that Pullman failed to meet this burden. Id.
Pullman moved to alter or amend the judgment in order to correct what it asserts to be error of law in the earlier ruling. It argues that Bankruptcy Code § 547(a)(4) dictates the applicable date determining when a tax is incurred, and thus Pullman's payments of $149,197.44 were for an antecedent debt and are recoverable preferences. Pullman also requests consideration of the question of whether the ordinary course of business defense raised by the United States in its initial brief is valid (an argument not necessary to reach earlier in light of rulings in the original opinion). Finally, Pullman requests consideration of whether Pullman is entitled to prejudgment interest in the event that it recovers the $149,197.44 referred to in the instant motion (interest being another issue not reached earlier since no recovery was then allowed).
This discussion will stand as an amendment to the earlier Conclusions of Law herein, 186 B.R. 88, and the earlier Conclusions are readopted except to the extent they are hereby amended.
Because this matter "arises under" 11 U.S.C. § 547, subject matter jurisdiction lies under 28 U.S.C. § 1334(b). Venue lies here pursuant to 28 U.S.C. § 1409. As such, this matter is properly here pursuant to 28 U.S.C. § 157 and Local General Rule 2.33(a) of the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(F).
This motion to alter or amend judgment has been brought under Fed.R.Civ.P. 59, which is incorporated by Fed.R.Bankr.P. 9023. Motions under Rule 59 can only be brought to deal with manifest errors of law or fact, or if there is a need to present newly discovered evidence. Federal Deposit Ins. Corp. v. Meyer, 781 F.2d 1260, 1268 (7th Cir.1986).
The decision to grant or deny a Rule 59 motion is within the Court's discretion. LB Credit Corp. v. Resolution Trust Corp., 49 F.3d 1263 (7th Cir.1995).
Having found error of law in the earlier ruling, the motion to alter or amend judgment is allowed through entry of this Amendment to Conclusions of Law, to the extent hereby allowed.
The threshold issue is whether an error of law was made in the opinion and judgment that entirely denied Pullman's preference recovery action. Section 547(b) of the Bankruptcy Code provides that a trustee or a debtor-in-possession may avoid any transfer of an interest of the debtor in property:
(1) to or for the benefit of a creditor; (2) for or on account of an antecedent debt owed by the debtor before such transfer was made; (3) made while the debtor was insolvent; and (4) made on or before 90 days before the filing of the petition this period is extended to one year in the case of a creditor who qualifies as an "insider".
11 U.S.C. § 547(b). Moreover, the transfer must have allowed the creditor to receive more than it would have received in a hypothetical Chapter 7 liquidation. 11 U.S.C. § 547(b)(5). Pullman has the burden of proof to establish all elements of § 547(b) by a "preponderance of the evidence." 11 U.S.C. § 547(g); Pullman, 186 B.R. at 95 (citing Matter of Prescott, 805 F.2d 719, 726 (7th Cir.1986)).
All elements of a preference action under § 547(b), with exception of the antecedent debt requirement, were earlier found to...
To continue reading
Request your trial