In re Stoecker, Bankruptcy No. 89 B 02873.
| Citation | 151 BR 989 |
| Decision Date | 23 February 1993 |
| Docket Number | Bankruptcy No. 89 B 02873. |
| Parties | In re William J. STOECKER, Debtor. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
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James D. Newbold, Asst. Atty. Gen., Illinois Dept. of Revenue, Chicago, IL, for Illinois Dept. of Revenue.
Thomas Raleigh, Raleigh & Helms, Chicago, IL, Trustee.
Robert Radasevich, Neal, Gerber & Eisenberg, Chicago, IL, for the trustee.
M. Scott Michel, Chicago, IL, U.S. Trustee.
This matter comes before the Court on the objection of Thomas E. Raleigh, Chapter 7 trustee (the "Trustee") for the estate of William J. Stoecker (the "Debtor"), to a proof of claim, as subsequently amended, filed by the Illinois Department of Revenue (the "Department"). For the reasons set forth herein, the Court having considered all the pleadings and evidence adduced at trial by way of testimony and exhibits, sustains the objection and disallows the subject proof of claim.
The Court has jurisdiction to entertain this objection to claim pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(B).
On February 21, 1989, an involuntary petition under Chapter 11 was filed against the Debtor. Thereafter, on March 20, 1989, the Trustee was appointed Chapter 11 trustee of the estate for cause. On February 26, 1990, the case was converted to Chapter 7. The Trustee remained as the Chapter 7 trustee. Many more of the facts, background and history of this case are contained in earlier Opinions. See In re Stoecker, 118 B.R. 596, 598-599 (Bankr. N.D.Ill.1990); In re Stoecker, 114 B.R. 965, 967-968 (Bankr.N.D.Ill.1990); In re Stoecker, 103 B.R. 182, 184-185 (Bankr.N.D.Ill. 1989). Additional background information concerning the related corporate cases is contained in other Opinions of the Court. See In re Grabill Corp., 110 B.R. 356, 358 (Bankr.N.D.Ill.1990); In re Grabill Corp., 103 B.R. 996, 997-998 (Bankr.N.D.Ill.1989).
Upon conversion of the case from Chapter 11 to Chapter 7, the Court by Order dated March 5, 1990, set the 11 U.S.C. § 341 meeting of creditors for March 28, 1990, as required by Federal Rule of Bankruptcy Procedure 2003(a). That Order provided that all proofs of claim were to be filed within ninety days after the section 341 meeting of creditors, on or before June 26, 1990, pursuant to Bankruptcy Rule 3002(c). On November 28, 1990, pursuant to an agreed order, the Debtor's discharge was denied under 11 U.S.C. § 727 in settlement of various filed objections to discharge.
Prior to conversion, the Department filed three proofs of claim on July 25, 1989, when the case was still in its Chapter 11 phase. The first two claims are for withholding tax and Retailers' Occupation/Use Tax (Ill.Rev.Stat. ch. 120, para. 440 et seq. and para. 439.1 et seq.) owed by the Debtor as responsible officer of The Cook's Cupboard. The amounts of these claims are $12,667.00 and $1,330.21. (Department Exhibit No. 16). The third claim for $222.03 is asserted against the Debtor as responsible officer of Eagle Line, Inc. for Retailers' Occupation/Use Tax. (Department Exhibit No. 16). Thereafter, on November 17, 1989, the Department filed an amended proof of claim, asserting additional taxes owed by the Debtor as responsible officer for The Cook's Cupboard in the amount of $14,630.00. (Answer of Department to Objection to Claim, Exhibit D). The amount of the Department's timely filed proofs of claim totals $14,852.03. No other objections thereto have been filed, thus those claims were deemed allowed under 11 U.S.C. § 502(a) and Bankruptcy Rule 3001(f), although the claims for $1,330.21 and $14,630.00 have been withdrawn by the Department. (Department Exhibit No. 18).
On January 21, 1992, approximately a year and a half after the claims bar date, the Department filed the subject contested proof of claim (Trustee's Objection to Proof of Claim, Exhibit B) which represents Retailers' Occupation/Use Tax allegedly owed by the Debtor as responsible officer for Chandler Enterprises, Inc. ("Chandler"). See Ill.Rev.Stat. ch. 120, para. 452½ (1991). The basis of the claim (subsequently amended to reflect a reduction per an amended claim dated September 3, 1992) arises from Chandler's purchase of an aircraft in 1988. Chandler was an Illinois Corporation, incorporated on January 24, 1985. (Department Exhibit Nos. 19 and 20). The Debtor was president and sole director, but not the sole officer, of Chandler from 1985 to 1990. Id. Chandler was involuntarily dissolved by the Illinois Secretary of State on June 1, 1990. (Department Exhibit No. 20, p. 5).
According to the records of the Federal Aviation Administration, Chandler purchased a Dassault Falcon 50 aircraft from Prewitt Leasing, Inc. on September 30, 1988. (Department Exhibit No. 7). The preceding link in the chain of title also showed on that same date, Jack Prewitt & Associates, Inc. sold the aircraft to Prewitt Leasing, Inc., prior to Prewitt Leasing, Inc.'s sale of the aircraft to Chandler. (Department Exhibit No. 6). The aircraft was previously sold to Jack Prewitt & Associates, Inc. on June 1, 1988, by Opex Aviation, Inc. (Department Exhibit Nos. 5 and 5A). The aircraft was subsequently leased by Chandler to Grabill Corporation for the period of September 30, 1988 through December 30, 1988, at a basic monthly rental of $172,752.25. (Department Exhibit No. 8, p. XXXXXXXXXXX).
Neither Chandler nor Prewitt Leasing, Inc. paid any sales/use tax, withholding tax or income tax on Chandler's purchase of the aircraft. John Anderson, counsel for Chandler and Grabill, issued an opinion concluding that under Illinois law, there was no sale or use tax properly assessable or payable as a result of the purchase of the aircraft by Chandler or the lease of the aircraft by Chandler to Grabill. (Trustee Exhibit No. 3). Such legal opinion was supported by the vice-president of Prewitt Leasing, Inc. who signed a "Certificate Re Occasional Seller Exemption from Illinois Sales and Use Tax" on September 30, 1988. (Trustee Exhibit No. 4).
On March 7, 1990 and June 7, 1990, weeks before the claims bar date, the Department sent Chandler two letters demanding payment of the claimed tax due. (Trustee Exhibit Nos. 3 and 4). Subsequently, on September 7, 1990, a Notice of Penalty Liability was issued against Chandler. (Department Exhibit No. 10). Almost one year later, on August 15, 1991, a Notice of Penalty Liability was issued against the Debtor. (Department Exhibit No. 1). On September 25, 1991, the Department sent the Debtor a demand for full payment of the tax liability claimed. (Department Exhibit No. 13). The Trustee subsequently objected to allowance of this late filed claim pursuant to Bankruptcy Rule 3007. On July 30, 1992 and August 27, 1992, the Court held the trial on this matter. Thereafter, the matter was taken under advisement after submission of post-trial briefs.
The Trustee has objected to the late filed claim of the Department on two grounds: (1) the claim was filed after the bar date fixed by Bankruptcy Rule 3002(c), and hence is untimely; and (2) the claim against the Debtor as responsible officer of Chandler is invalid as the underlying purchase of the aircraft by Chandler was an "occasional sale" exempt from sales/use tax.
The Department does not deny that its claim filed on January 21, 1992 is untimely. Instead, the Department contends that the claim should be treated as an amendment to the earlier filed proofs of claim pursuant to Federal Rule of Civil Procedure 15. In the alternative, the Department requests the Court utilize its equitable powers to allow the claim though late filed. The Department explains that it failed to file a timely claim against the Debtor as responsible officer of Chandler because Chandler never registered with the Department for any type of tax, and never filed a tax return with the Department during its corporate existence. By the time the Department discovered that Chandler was engaged in taxable activities and that the Debtor was a responsible officer of Chandler, the claims bar date had passed. The Department maintains, however, that by previously filing responsible officer tax claims, it has clearly evidenced its intention of claiming any and all responsible officer liability against the Debtor and his bankruptcy estate.
The Department contends its efforts to file a timely claim were impeded as a result of Chandler's conduct and omissions. It alleges that Chandler acted improperly in failing to register with the Department or file tax returns regarding its purchase and lease of the aircraft. Moreover, the Department contends that Chandler attempted to conceal the taxability of the transaction by having title to the aircraft transferred from Jack Prewitt & Associates, Inc., a retail seller of aircraft, to Prewitt Leasing, Inc., a purported lessor of aircraft, so that it could claim the "occasional sale" exemption.
The Trustee contends that the sale of the aircraft to Chandler was an "occasional sale" of property at retail, exempt from sales/use tax. The Trustee argues that Anderson's opinion letter properly concluded that the transaction was exempt from taxes. The Department disagrees with this contention and claims that in order to create a sale that was ostensibly exempt from tax, Jack Prewitt & Associates, Inc. sold the aircraft to Prewitt Leasing, Inc. who in turn acted as a nominal "straw man" and immediately thereafter sold it to Chandler. The Department contends the true seller was Jack Prewitt & Associates, Inc., and that the sale was not an "occasional sale" exempt from tax.
Pursuant to Federal Rule...
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