In re Stoecker

• Decision Date: 17 October 1996
• Docket Number: Bankruptcy No. 89 B 02873.
• Citation: 202 BR 429
• Parties: In re William J. STOECKER, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

202 B.R. 429 (1996)

In re William J. STOECKER, Debtor.

Bankruptcy No. 89 B 02873.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

October 17, 1996.

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Robert Radasevich, George M. Hoffman, David A. Eide, Neal Gerber & Eisenberg, Chicago, IL, for Thomas E. Raleigh, Chapter 7 Trustee.

James W. Newbold, Assistant Attorney General, Office of the Attorney General, Chicago, IL, for Illinois Department of Revenue.

                TABLE OF CONTENTS FOR MEMORANDUM OPINION
                 I.  JURISDICTION AND PROCEDURE ..................................................... 436
                II.  APPLICABLE STANDARDS ........................................................... 437
                     A. Burden of Proof for a Contested Proof of Claim .............................. 437
                     B. Summary Judgment Under Federal Rule of Civil Procedure 56 and
                          Federal Rule of Bankruptcy Procedure 7056 ................................. 437
                     C. Summary Judgment Implemented by Local Bankruptcy Rule 402 ................... 438
                III. UNDISPUTED FACTS AND BACKGROUND ................................................ 439
                     A. IDOR's Procedures re Bankruptcy Cases of Taxpayer Debtors ................... 439
                     B. IDOR's Procedures Applied in the Debtor's Case .............................. 440
                     C. IDOR's Other Timely Filed Claims Not in Dispute Here ........................ 440
                     D. Background Regarding the Instant Contested Claim ............................ 440
                     E. The Instant Claim Objection and Proceedings Prior to the Remand
                          Order and Subsequent Thereto .............................................. 442
                IV. DISCUSSION ...................................................................... 444
                     A. Did IDOR Issue the NPL in Violation of the Automatic Stay, Thus
                         Rendering It Void? ......................................................... 444
                     B. Did Chandler Owe the Use Tax Assessed By IDOR For the Purchase of
                         the Aircraft? .............................................................. 445
                        1. Sovereign Immunity Does Not Prevent the Court From Redetermining
                            Chandler's Liability For the Use Tax .................................... 445
                        2. The Sale of the Aircraft Was an "Isolated or Occasional Sale"
                            Exempt From Tax ......................................................... 449
                

                        3. The Court Will Not Disregard the Separate Legal Entities of Prewitt
                            Leasing and Jack Prewitt & Associates and Thus Find That
                            Prewitt Leasing Was Not an "Occasional" Seller of Aircraft .............. 450
                     C. Was the Debtor a Responsible Officer Who Willfully Failed to Pay the
                         Use Tax Assessed Against Chandler .......................................... 452
                        1. The Law of the Case Doctrine Prevents the Court From Not
                            Considering the NPL as Prima Facie Evidence ............................. 452
                        2. Applicable Statutes and Case Law Regarding Responsible Officer
                            Liability ............................................................... 453
                        3. The Evidence Did Not Show That the Debtor Had Control, Supervision
                            or Responsibility for Filing Returns and Making Payment of
                            the Tax Allegedly Owed By Chandler ...................................... 453
                        4. The Debtor's Failure to Pay the Tax Was Not Shown To Be
                            Voluntary, Conscious, and Intentional ................................... 455
                        5. The Court Will Not Draw Any Inferences From the Debtor's Invocation
                            of the Fifth Amendment Privilege ........................................ 457
                        6. The Use Tax Allegedly Owed By Chandler Arose on September 30
                            1988 .................................................................... 459
                        7. The Aircraft Lease/Purchase Agreement Between Chandler & Prewitt
                            Leasing Was Not a Disguised Conditional Sale ............................ 460
                        8. IDOR Failed To Sustain Its Ultimate Burden of Proof ...................... 462
                     D. Should the Court Equitably Subordination IDOR's Claim? ...................... 463
                        1. The Trustee's Request for Equitable Subordination is Properly Before
                            the Court ............................................................... 463
                        2. Applicable Statute and Case Law Regarding Equitable Subordination ........ 463
                        3. The Evidence Does Not Mandate Equitable Subordination of IDOR's
                            Claim ................................................................... 464
                V. CONCLUSION ........................................................................ 465
                

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

This matter comes before the Court on a remand order from the United States District Court for the Northern District of Illinois to determine whether William J. Stoecker (the "Debtor"), as a responsible officer of a non-debtor corporation, Chandler Enterprises, Inc. ("Chandler"), willfully failed to pay a use tax assessed against Chandler. A motion for summary judgment on this and related issues was filed by Thomas E. Raleigh, the Chapter 7 trustee (the "Trustee") for the Debtor's estate, which is opposed by the responding creditor claimant, the Illinois Department of Revenue ("IDOR"). For the reasons set forth herein, the Court hereby partially grants the motion for summary judgment. The Trustee's objection to IDOR's claim is sustained in part and the claim is disallowed. The Court holds that Chandler did not owe the assessed use tax in the first instance. Moreover, the Court holds that IDOR has failed to prove that the Debtor willfully failed to pay the use tax. Finally, the Court will not equitably subordinate IDOR's claim under 11 U.S.C. § 510(c).

I. JURISDICTION AND PROCEDURE

The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334(b) 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).¹ See In re Stoecker, 151 B.R. 989, 991 (Bankr. N.D.Ill.1992), rev'd and remanded, 179 B.R. 532 (N.D.Ill.1994).

II. APPLICABLE STANDARDS

A. Burden of Proof for a Contested Proof of Claim

Pursuant to Federal Rule of Bankruptcy Procedure 3001(f), "a proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim." Fed. R.Bankr.P. 3001(f); see also 11 U.S.C. §§ 501 and 502(a). Claim objectors carry the initial burden to produce some evidence to overcome this rebuttable presumption. Bank of Bellwood v. Stoecker (In re Stoecker), 143 B.R. 879, 883 (N.D.Ill.1992), aff'd in part vacated in part, 5 F.3d 1022 (7th Cir. 1993). However, the ultimate burden of persuasion always remains with the claimant to prove entitlement to the claim. Franchise Tax Board of the State of California v. MacFarlane, 83 F.3d 1041, 1045 (9th Cir. 1996); Brown v. Internal Revenue Service (In re Brown), 82 F.3d 801, 804-05 (8th Cir.1996); In re Octagon Roofing, 156 B.R. 214, 218 (Bankr.N.D.Ill.1993). IDOR's properly filed claim constitutes prima facie evidence of the validity and amount of the claim. The Trustee has the burden of presenting evidence to rebut the prima facie validity. If that burden is satisfied, IDOR then bears the ultimate burden of proving its claim. See MacFarlane, 83 F.3d at 1045.

B. Summary Judgment Under Federal Rule of Civil Procedure 56 and Federal Rule of Bankruptcy Procedure 7056

In order to prevail on a motion for summary judgment, the movant must meet the statutory criteria set forth in Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056. Rule 56(c) reads in part:

The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

Fed.R.Civ.P. 56(c). The primary purpose for granting a summary judgment motion is to avoid unnecessary trials when there is no genuine issue of material fact in dispute. Trautvetter v. Quick, 916 F.2d 1140, 1147 (7th Cir.1990); Farries v. Stanadyne/Chicago Div., 832 F.2d 374, 378 (7th Cir.1987) (quoting Wainwright Bank & Trust Co. v. Railroadmen's Federal Sav. & Loan Ass'n of Indianapolis, 806 F.2d 146, 149 (7th Cir. 1986)).

In 1986, the United States Supreme Court decided a trilogy of cases which encourage the use of summary judgment as a means to dispose of factually unsupported claims. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Electric Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The burden is on the moving party to show that no genuine issue of material fact is in dispute. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; Matsushita, 475 U.S. at 585-86, 106 S.Ct. at 1355-56; Celotex, 477 U.S. at 322, 106 S.Ct. at 2552.

The party seeking summary judgment always bears the initial responsibility of informing the court of the basis for its motion and must identify those portions of the "pleadings, depositions, answers to interrogatories, and affidavits, if any," which it believes demonstrates the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. at 2553. Once the motion for summary judgment is supported by a prima facie showing that the moving party is entitled to judgment as a matter of law, Rule 56(e) provides that a party opposing the motion may not rest upon the mere allegations or...