Vanguard Operating, LLC v. State (In re Vanguard Natural Res., LLC)
| Decision Date | 14 May 2019 |
| Docket Number | ADVERSARY NO. 18-03046,CASE NO: 17-30560 |
| Citation | 603 B.R. 310 |
| Parties | IN RE: VANGUARD NATURAL RESOURCES, LLC, Debtor(s) Vanguard Operating, LLC, Plaintiff(s) v. State of Wyoming, Department of Revenue, Mineral Tax Division, Defendant(s) |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
James Tillman Grogan, III, Philip M. Guffy, Blank Rome LLP, Houston, TX, for Plaintiff.
Karl D. Anderson, Devin Kenney, Curtis M. McNiven, Megan L. Pope, Daniel P. Solish, Wyoming Attorney General's Office, Cheyenne, WY, for Defendant.
On February 1, 2017, Vanguard Natural Resources, LLC and its subsidiaries, including Vanguard Operating, LLC ("Vanguard"), filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code.
On March 13, 2018, Vanguard initiated this adversary proceeding against the State of Wyoming Department of Revenue ("the Department"), in which it requested, among other things, an adjudication of its 2014 amended tax returns previously denied by the Department.
On August 27, 2018, the Department filed a Request for Abstention, arguing that although the Court had the authority to exercise jurisdiction over Vanguard's tax claims, the six-factor test for permissive abstention counseled against exercising jurisdiction. Vanguard takes the contrary position, maintaining that not only does the Court have the authority to exercise jurisdiction over its tax claims, but further that the six-factor test compels this Court to exercise jurisdiction over the entirety of Vanguard's claims.
For the reasons set forth below, the Court will exercise jurisdiction over Counts I, II and IV in Vanguard's complaint.
Prior to filing its bankruptcy petition, Vanguard paid monthly severance taxes on oil and natural gas production throughout the state of Wyoming as part of its mineral interest ownership in the state.2 (ECF No. 17 at 3–4 ). In 2014, Vanguard expanded its operations and mineral interests in Wyoming by acquiring assets in the Powder River Basin, the Wind River Basin, the Green River Basin, and the Big Horn Basin. (ECF No. 17 at 3 ). As a result of those acquisitions, in 2014 Vanguard owned and operated approximately 1,550 natural gas and oil wells in Wyoming and filed over 14,000 mineral tax returns for those same wells. (ECF No. 25-1 at 2 ). That same year, Vanguard paid the Department $12,466,356.93 in severance taxes. (ECF No. 27 at 5 ).
Vanguard claims that in early 2017, as it prepared its 2016 gross products tax return on production, it "realized it had overpaid its severance tax on certain wells in Wyoming." (ECF No. 27 at 5 ). As a result, in 2018 Vanguard filed more than 2,000 amended tax returns, restating its 2014 severance tax obligation.3 (ECF No. 25-1 at 2 ; ECF No. 17 at 5 ). According to Vanguard, the overpayment of taxes stemmed from its 2014 "complex asset acquisitions," which required that Vanguard "adjust its tax accounting methodologies on the newly acquired mineral interests and wells." (ECF No. 17 at 4 ). Specifically, Vanguard claims that it did not take several available tax deductions for some of the newly acquired wells before calculating the severance tax owed, and that it over-reported sale volume and revenues on other acquired wells. (ECF No. 17 at 4 ). Vanguard currently seeks a refund of $710,120.41 based on an alleged overpayment of its 2014 severance taxes. (ECF No. 17 at 5 ).
From January to February 2018, Vanguard submitted thousands of amended gross products and severance tax returns to the Department, recalculating the severance tax for each well it operated during the 2014 tax year.4 (ECF No. 17 at 5 ; ECF No. 25 at 5 ). While the Department "accepted several amendments" in which Vanguard underreported taxes on some wells, it also "denied thousands of [other] amendments" that would have entitled Vanguard to refunds.5 (ECF No. 17 at 5 ). Vanguard received the Department's rejection notices on February 13, 2018. (ECF No. 27 at 5 ). Vanguard indicates that, rather than appeal to the Wyoming State Board of Equalization (the "Board"), it opted to file a complaint initiating this adversary proceeding prior to the expiration of the 30-day appeal period. (ECF No. 27 at 6 ).
Vanguard resubmitted several of the rejected amended returns for departmental review, all of which are currently being evaluated. (ECF No. 25 at 6 ). Vanguard submitted additional amendments to its 2014 tax returns in April 2018. (ECF No. 27 at 6 ). Approximately a month later, Vanguard "received a letter from [the Department] requesting substantially similar documentation concerning the amended 2014 tax returns that resulted in their rejection back in February 2018." (ECF No. 27 at 6 ).
On February 1, 2017, Vanguard Natural Resources, LLC and its direct and indirect subsidiaries—including Vanguard Operating, LLC—commenced chapter 11 cases by filing voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. (Case No. 17-30560, ECF No. 1 ). On July 17, 2017, Vanguard filed its amended Plan of Reorganization. (Case No. 17-30560, ECF No. 1096 ). On July 18, 2017, the Plan was confirmed, and it became effective on August 1, 2017. (Case No. 17-30560, ECF No. 1109 ).
On February 22, 2017, the State of Wyoming filed Proof of Claim No. 73. (See ECF No. 17–1 ). The Department's claim seeks an unsecured priority claim of $1,000.00 for taxes owed pursuant to 11 U.S.C. § 507(a)(8). (ECF No. 17 at 7 ).
On March 13, 2018, Vanguard filed a complaint initiating this adversary proceeding. (See ECF No. 1 ). Vanguard's amended complaint seeks the following relief:
On August 27, 2018, the Department filed a Request for Abstention. (See ECF No. 25 ). The Department requests that this Court abstain from exercising jurisdiction over Counts I, II, and IV of Vanguard's complaint, and "require Vanguard to pursue its requested refund under the same Wyoming administrative tax process applicable to its competitors"—through the Board. (ECF No. 25 at 6 ). Specifically, the Department argues that the six-factor test counsels against exercising jurisdiction in this case because: (i) the tax issues in this matter are complex and exceedingly fact-intensive; (ii) abstention would not impair the orderly and efficient administration of the estate because the Plan has been confirmed; (iii) abstention would lighten this Court's docket; (iv) the length of trial and decision would be shortened if taken up through the Board; (v) Vanguard's asset and liability structure neither favors nor disfavors abstention; and (vi) Vanguard's potential prejudice is outweighed by the potential prejudice to the Department's obligation to fairly and uniformly assess competing oil and gas firms' severance and ad valorem taxes. (ECF No. 25 at 3–12 ).
On September 27, 2018, Vanguard filed its Opposition to the Department's Request for Abstention. (See ECF No. 27 ). Vanguard argues that abstention would be "inefficient, costly, and illogical" because it would force it to litigate in multiple forums in different states. (ECF No. 27 at 16 ). Vanguard claims the Court should not abstain from adjudicating its § 505 claim because: (i) although the documents are voluminous, the evidence can be simplified and the tax issues are not complex; (ii) given that the claims are interrelated, the Court's determination of the tax issues will aid in the efficient administration of this case; (iii) the case will not burden the Court's docket; (iv) adjudication of these issues will be resolved quickly in this Court; (v) Vanguard's asset and liability structure is irrelevant; and (vi) Vanguard will be significantly prejudiced if the Court abstains. (ECF No. 27 at 14–19 ). Additionally, Vanguard contends that abstention could foreclose it from seeking relief in an alternative forum, since the 30-day period for appealing the Department's rejection of its 2014 amendments has passed. (ECF No. 27 at 10 ).
On October 22, 2018, the Court held a hearing on the Department's Motion to Abstain. At the hearing, the Department argued that although the Court has jurisdiction to adjudicate Vanguard's tax claims, that such jurisdiction is discretionary, and the Court should abstain when the policy reasons for exercising jurisdiction do not exist. (October 22, 2018 Hearing at 9:35 a.m.). The Court took this matter under advisement at the conclusion of the hearing.
On March 31, 2019, Vanguard Natural Resources, Inc. ("VNR Finance Corp.") and its direct and indirect subsidiaries—including Vanguard Operating, LLC—commenced a second chapter 11 case by filing a voluntary petition for relief under Chapter 11 of the Bankruptcy Code ("Vanguard II "). (Case No. 19-31786, ECF No. 1). On April 12, 2019, the Court requested briefing on the effect of VNR Finance Corp.'s Chapter 11 filing on the Department's Motion to Abstain. (See ECF No. 40 ). Both parties maintain their previous positions.
Vanguard argues that its "second chapter 11 filing strongly supports the Court declining to abstain from determining whether the Debtors are entitled to a tax refund." (ECF No. 43 at 2 ). Vanguard claims that the confirmed plan in the first bankruptcy ("Vanguard I ") is no longer operative and therefore, declining to...
To continue reading
Request your trial