In re Stoecker
Decision Date | 23 March 1995 |
Docket Number | No. 93 C 2160,89 B 2873.,93 C 2160 |
Citation | 179 BR 532 |
Parties | In re William J. STOECKER, Debtor. STATE OF ILLINOIS, DEPARTMENT OF REVENUE, Appellant, v. Thomas E. RALEIGH as Trustee of the Estate of William J. Stoecker, Appellee. |
Court | U.S. District Court — Northern District of Illinois |
James Douglas Newbold, Illinois Atty. General's Office, Chicago, IL, for Etolen and Buchanan Masonry, State of Ill., Dept. of Revenue.
Robert Radasevich, David A. Eide, George Michael Hoffman, Neal, Gerber & Eisenberg, Chicago, IL, for Thomas E. Raleigh.
Thomas E. Raleigh, Raleigh and Helms, Chicago, IL, for William J. Stoecker.
Opinion Granting Rehearing and Denying Certification for March 23, 1995.
This case is before the court on the appeal of the State of Illinois Department of Revenue ("Department") from the United States Bankruptcy Court for the Northern District of Illinois. In re Stoecker, 151 B.R. 989 (Bankr.N.D.Ill.1993) (Squires, J., presiding). The principal issue in this case is whether Rule 3002 of the Federal Rules of Bankruptcy Procedure ("Rule ____") acts as a bar date to exclude late filed priority claims in a Chapter 7 case. The court holds that Rule 3002 does not bar late filed priority claims. In addition, the court concludes that principles of equitable subordination should determine whether late filed priority claims are entitled to distribution, and if so, the particular distribution level they are entitled to under 11 U.S.C. § 726. For the following reasons, the bankruptcy court's decision is reversed and remanded for further proceedings in accordance with this opinion.
This case began as an involuntary Chapter 11 petition against William J. Stoecker ("Debtor") and was converted to Chapter 7 on February 26, 1990. Thomas E. Raleigh ("Trustee") was appointed the Chapter 11 trustee of the Debtor's estate and was reappointed as the Chapter 7 trustee. Pursuant to 11 U.S.C. § 341(a), a meeting of creditors was held on March 28, 1990. As required by Rule 3002(c), all proofs of claim were to be filed on or before June 26, 1990 ("the bar date"), ninety days after the meeting. On July 25, 1989, the Department timely filed three proofs of claim totalling $14,852.03.
Prior to the above proceedings, the Debtor had purchased an aircraft from Prewitt Leasing, Inc. ("Prewitt") on September 30, 1988. At that time, he was president and sole director of Chandler Enterprises, Inc. ("Chandler"). Chandler subsequently leased the aircraft to Grabill Corporation ("Grabill"), a corporation in which the Debtor was president and sole shareholder. Neither Chandler nor Prewitt paid any sales/use tax, withholding tax, or income tax on Chandler's purchase of the aircraft. The Debtor states that his attorney advised him that there was no sale or use tax properly assessable or payable as a result of the purchase by Chandler or the lease of the aircraft by Chandler to Grabill. Chandler was involuntarily dissolved by the Illinois Secretary of State on June 1, 1990.
After the Department received notice of the Debtor's bankruptcy filing, the Department researched his liability to the Department. Apparently due to Chandler's failure to register with the Department and to file any tax returns, the Department did not determine that the Debtor was an officer of Chandler during this initial search. Nevertheless, in approximately February, 1990, the Department conducted a separate investigation into the records of the Federal Aviation Administration. At that time, the Department learned of Chandler's purchase of the aircraft. The Department wrote two letters to Chandler dated March 7, 1990 and June 7, 1990 seeking additional information in order to ascertain whether the purchase of the airplane was subject to use tax. Chandler did not respond to either letter.
On September 7, 1990, the Department issued a Notice of Penalty Liability against Chandler. Between September 26, 1991 and April 9, 1991, the Department attempted to contact Chandler and its officers but was unsuccessful. Subsequently, a Notice of Penalty Liability was issued against the Debtor on August 15, 1991. The Department sent the Debtor a demand for full payment of the tax liability claimed on September 25, 1991. On January 21, 1992, approximately 18 months after the bar date, the Department filed a proof of claim in the amount of $1,476,196.86 for Retailers' Occupation/Use Tax allegedly owed by the Debtor as the responsible officer of Chandler.
The Trustee objected to the January 21, 1992 proof of claim filing because it was filed after the bar date fixed by Rule 3002(c). In addition, the Trustee also argued that the Debtor is not liable for the use tax under the "occasional sale" exemption.
In the bankruptcy court, the Department argued that the court should allow the claim as an amendment to the earlier filed proofs of claim pursuant to Fed.R.Civ.P. 15. In the alternative, the Department asked the bankruptcy court to use its equitable powers to allow the claim.
In its Memorandum, Opinion, and Order dated November 25, 1992, the bankruptcy court sustained the Trustee's objection and did not allow the Department's claim. It found that the Department's proof of claim was tardily filed. The court reasoned that the claim was an entirely new claim, and not an amendment to an earlier filed claim. Accordingly, the amendment was barred by Rule 3002(c). Furthermore, the court declined to allow the claim under its equitable powers.
The Department filed a motion for reconsideration of the bankruptcy court's decision to sustain the Trustee's objection on December 10, 1992. The motion was based in part on the In re Rago, 149 B.R. 882 (Bankr. N.D.Ill.1992) case, which was decided two days prior the court's original ruling, and reached a contrary result. The court denied the motion for reconsideration on February 23, 1993.
The Department now appeals the bankruptcy court's decision. This action was a core proceeding before the bankruptcy court under 28 U.S.C. § 157(b)(2)(B). This court has jurisdiction pursuant to 28 U.S.C. § 158(a).
Rule 8013 provides that a district court must accept the bankruptcy court's findings of fact unless clearly erroneous. Fed.R.Bankr.P. 8013; In re Tolona Pizza Prod. Corp., 3 F.3d 1029, 1033 (7th Cir.1993). However, the court may independently examine the bankruptcy court's conclusions of law. In re Yonikus, 996 F.2d 866, 868 (7th Cir. 1993). Accordingly, this court subjects the bankruptcy court's conclusions of law to de novo review. In re UNR Indus., Inc., 986 F.2d 207, 208 (7th Cir.1993).
The court must first determine whether the Department improperly raised new matters before the bankruptcy court in its motion for reconsideration. The Trustee contends that the Department improperly used its motion to argue for the first time that untimeliness can never constitute a proper basis for disallowance of a proof of claim. This theory was espoused by Bankruptcy Judge Wedoff in In re Rago.
The Trustee cites Publishers Resource, Inc. v. Walker-Davis Publications, Inc., 762 F.2d 557 (7th Cir.1985), to support the proposition that motions to reconsider serve "to correct manifest errors of law or fact or to present newly discovered evidence." Publishers Resource, 762 F.2d at 561 (citing Keene Corp. v. Int'l Fidelity Ins. Co., 561 F.Supp. 656, 665-66 (N.D.Ill.1982), aff'd, 736 F.2d 388 (7th Cir.1984)). Moreover, such motions should not "serve as the occasion to tender new legal theories for the first time." Id. The Trustee also cites Havoco of America, Ltd. v. Sumitomo Corp. of America, 971 F.2d 1332, 1336 (7th Cir.1992) for the broad proposition that a legal argument raised for the first time on a motion for reconsideration is waived if not presented before judgment was entered.
In response, the Department argues that In re Rago represents a significant development in the law pertaining to the area of allowances. Furthermore, the Department subsequently brought to our attention In re Vecchio, 20 F.3d 555 (2nd Cir.1994) which adopted the rationale of In re Rago and was decided after the court denied the motion for reconsideration. The bankruptcy court in the case at hand relied heavily on United States v. Vecchio, 147 B.R. 303 (E.D.N.Y. 1992), the decision that In re Vecchio explicitly reversed. In re Vecchio at 556. It is also significant to note that the author, Judge Wedoff, of In re Chirillo, 84 B.R. 120 (Bankr. N.D.Ill.1988), a case cited with approval by the bankruptcy court in this case, later rejected Chirillo by stating that the case was based on the mistaken assumption that a late filed claim is disallowed. In re Rago, 149 B.R. at 885.
In light of these developments, this court holds that the Department's new argument is properly before the court on appeal. Both In re Rago and In re Vecchio represent highly persuasive authority that the Department could not have presented to the bankruptcy court before it delivered its opinion.
Furthermore, the court does not read the Havoco decision as broadly as the Trustee. In that case, the court simply held that a Fed.R.Civ.P. 59(e) motion to alter or amend the judgment "cannot be used to raise new arguments which could and should have been raised before judgment was entered." Havoco, 971 F.2d 1332 at 1336. The Trustee correctly points out that, before the bankruptcy court entered judgment in this case, limited authority was available to the Department to support the theory it now advances. However, this court can not conclude that a reasonable litigant in the Department's position should have raised the new argument prior to the bankruptcy court's decision, particularly when it could not have known about In re Rago or In re Vecchio.
Therefore, the court holds that the Department's new argument is properly before...
To continue reading
Request your trial