In Re: U.S. Energy Systems, Inc.

Filing 14

OPINION: Based on the conclusions set forth above, the Dismissal Order and 8/6 Order are affirmed, and the appeal is dismissed. (Signed by Judge Robert W. Sweet on 9/13/2013) (cd)

COURT
UNITED STATES DISTRI
SOUTHERN DISTRICT OF NEW YORK

-----­ ------------x
In Re:
U.S. ENERGY SYSTEMS, INC., et al.,
Debtors.

12 Civ. 7107
OPINION

-----­ ---------x
ILLINOIS DEPARTMENT OF REVENUE,
Appellant,
-against
U.S. ENERGY BIOGAS CORP., et al.,
Appellees.

-----Attorne
Illinois

for

--------X

llant
rtment of Revenue

LISA MADIGAN
ATTORNEY GENERAL, STATE OF ILLINOIS
Revenue Litigation Bureau
100 W. Randolph Street
Chicago, IL 60601
By: Assistant Attorney General James D. Newbold
Attorneys
U.S. Ene
HUNTON & WILLIAMS LLP

200 Park Avenue, 53
Floor

New York, NY 10166

By:
Peter S. Partee, Esq.

Robert A. Reich, Esq.

Sweet, D.J.

The Illinois Department of Revenue
appealed from (1) an order (t

Southern

"Dismissal Order") ente

on

States Bankruptcy Court for the

unit

May 18, 2012 by

("IDOR") has

strict of New York (the "Bankruptcy Court")
chapter 11 cases of u.S. Energy Biogas Co

dismissing t

("USEB") and its subsidiaries, Biogas Fi

al

., Power

Generation (Suffolk), Inc., Resources Generating Systems, Inc.,
Suf

k Biogas, Inc., USEB Assignee, LLC, ZFC Energy,

Inc., and Oceanside Energy,

Inc.

(collect

Inc., ZMG

ly with USEB, the

"USEB Debtors" or "Appellees"); and (2) an order entered on
August 6, 2012
nying (i)
or amend t

(the "August 6 Order") by the Bankruptcy Court

IDOR's motion under Fed. R. Bankr. P. 9023 to alter
Bankruptcy Court's dismissal order (the "Rule 59

Motion"), and (ii)
reI
administrat

IDOR's motion under Fed. R. Bankr. P. 9024 to

f from the Bankruptcy Court's order setting an
bar

(the "Rule 60(b) Motion").

conclusions set forth below,
6 Order are affi

I

Dismiss

and the appeal is di

1

Upon the

Order and the August
ssed.

Prior History

The instant appeal arises from chapter 11 liquidation
petitions that were filed with the Bankruptcy Court by t
Appellees.

In these chapter 11 cases, the USEB Debtors sold

substantially all of their assets in return for the assumption
of certain ordinary course liabilities and a small pot of cash
calculated to
expenses

for accrued and ongoing administrative

their cases and in

Energy Systems, Inc.

bankruptcy case of U.S.

("USEY", and together with

Debtors, the "Debtors"), the USEB Debtors'

USEB

timate corporate

parent.

Duri

the pendency of the USEB Debtors' chapter 11

cases, IDOR made repeated requests for USEB to file Illinois tax
returns for certain pre-petition years as well as
ition year of 2009.
USEB filed object

Bankr. Dkt. 1218. 1

On December 20, 2010,

s to the pre-petition claims filed by IDOR,

and a hearing on the matter was set
979.

the post­

IDOR in turn filed a motion aski

r February 9, 2011.
the Bankrupt

continue the proceeding until USEB had fil

the request

Id.

Court to
tax

All citations to "Bankr. Dkt.
"re rence entries in the
docket of In re U.S. Energy Systems, Inc., et al., No. 08 10054
(ROD) (Bankr. S.D.N.Y.).
1

2

returns and IDOR had an opportunity to review those returns and
determine whet
amount.

r a tax liability existed, and if so, in what

Id. 1001.

In t

interim, on January 24, 2011, t

filed a motion as
the

ling

ors

Court to set a bar date

Motion").

ring

Id. 995,

administrat

e of

996.

Bar Date Mot

bar date appli

s, including t

ruary 3, 2011

(the "Bar Date

sought to make the

Ie to all governmental

ng authorities.

Motion was not served upon IDOR.

Id.

Bar Date

Id. 1000.

The Bankruptcy Court granted the Bar Date Motion, and
on

ruary 16, 2011, entered an order (the "Bar Date Order")

setting a date of March 25, 2011 the as t

dea

ine by which

administrative claimants were required to file requests for
payment of administrative expenses
On February 17, 2011, t
issued, notice of the es
IDOR.

r

requests for payment of certain administrative

expenses with a

authorit

ng the Bankrupt

USEB

Id. 1030, 1034.

day a

(t

"Bar Date").

Id. 1029.

er the Bar Date Order was

ishment of the Bar Date was sent to
However,

IDOR did not file a request

yment of an administrative expense.

3

of tax returns, which was

IDOR's counter-motion to compel fil
initially schedul

aims and

on USEB's objections to IDOR's

The heari

for February 9, 2011, was continued over t

course of several months as the parties engaged in negotiations.
Dkt. 1218.

Ban

When negotiations bro

down in late 2011,

IDOR demanded that USEB file its 2009 Illinois income tax
return.

Id.

return whi
advis

On February 4, 2012, USEB compli
showed zero tax due.

Id.

USEB that its 2009 return had

, filing a 2009

IDOR subsequently
en selected for a

and the audit was scheduled for May 26 - June 8, 2012.

Bankr.

Dkt. 1227.

Before the audit occurred, the USEB Debtors filed a
motion to

smiss their bankruptcy cases.

Bankr. Dkt. 1214.

the supporting papers, the USEB Debtors disclosed

In

tall

available funds had been distributed, and contended that (i)
there was no tax liabili

on t

merits, and (ii) that
sted, any claim by IDOR was

regardless of whether liability
ba

because IDOR had not filed an administrative expense
aim prior to the Admi

Bar Date.

strat

Id.

IDOR opposed

motion and argued, inter alia, that the Bankruptcy Court was
precluded by 11 U.S.C.
administrat

§

503(b) (1) (D)

from setting an

bar date that was applicable to a taxing agency.

4

A
2012.

ring on the dismissal motion was held on May 4,

At the hearing, the Bankrupt

Court found that because

rDOR had not filed a timely administrative claim, and because
re were no assets remaining in the U
di

was appropriate to enter an

0

cases.

Debtors' estates, it

However,

Tr. 5/4/12 at 14.2

retained limited juri

r

the bankruptcy

ssi

Bankruptcy Court

iction over the cases to allow rDOR to

seek an allowance of its tax claim by bringing a motion under
Bankruptcy Rule 9006 asserting excusable neglect, or a motion
for relief under Bankruptcy Rule 9024.
18, 2012,
smissing

rd. at 14-15.

Bankruptcy Court entered the

On May

smissal Order

chapter 11 cases.

On June 1, 2012, rDOR fil

(i)

t

Rule 60(b) Motion

seeking relief from the Bar Date Order on the basis that
order was void, Bankr. Dkt. 1228, and (ii) the Rule 59 Motion
asking the Bankruptcy Court to recons

r its dismissal order

and convert the USEB Debtors' cases to cases under Chapter 7 of
the Bankruptcy Code.

Bankr. Dkt. 1227.

All citat
to "Tr.
at _ _ If reference page numbers
transcript of a hearing conducted by the Bankruptcy Court on
t
identified date.

2

5

Prior to the hear

on the

59 and Rule 60(b)

motions, IOOR completed its audit of USEB's 2009 III
return, and fil

a notice

deficiency propos

total liability of $7.165 million.

y 17, 2012,

On

s tax

to assess

Bankr. Okt. 1240.

Bankruptcy Court conducted a

hearing on the Rule 59 and Rule 60(b) motions and denied both,
ruling, inter alia,

(i)

it could approp

ately enter an

administrative bar date order applicable to administrative tax
claimants;

(ii)

IOOR was not entitled to receive prior notice of

the Administrative Bar Date Motion; and (iii)
Motion could only

cons

IOOR's Ru

60(b)

as having asserted an alleged

legal error, and therefore was not timely under the applicable
one

statute of limitations.

Bankruptcy Court also denied
. 1242.

Tr. 7/17 at 23 24, 29-30.
Rule 59 Motion as moot.

The

Ban

On August 6, 2012, the Bankruptcy Court entered the

August 6 Order

ng IOOR's Rule 59 and Rule 60(b) motions.

rd.

On August 20, 2012, rOOR
and the

st 6

r.

The

led the Dismissal Order
1 was heard and marked fully

submitted on March 21, 2013.

6

Standard of Review

ews a

kruptcy court's findi

In re Karta Co

342 B.R. 45,

A district court
of fact

r clear error.

(S.D.N.Y. 2006).
after

A fi

ng of fact is c:ear

"the reviewing

dence is left with

entire

definite and firm

a mistake has been committed."

conviction

_o_f__
B_e_s_s_e_m_e_r
__C_l_·.. . ~~_N_._C_.,

470 U.S. 564, 573

States v. United States

(1985)

ct court

ies de novo review

to a bankruptcy court's conclusions of law.
F.3d 380, 390 (S.D.N.Y. 1997).

Acco

Procedure (the "Ban

bankruptcy rules

ect to

the Uni

In re Gucci, 126

ngly, a bankruptcy

court's interpretation of the Bankruptcy
of Bankrupt

Anderson v. Ci

333 U.S. 364, 395 (1948)).

In contrast, a dist

Southern

erroneous if,

ewing the entirety of the

court on

51

, the

1 Rules

cy Rules"), and the local

States Bankruptcy Court for

strict of New York (the "Local Bankruptcy
novo review. See ----------------~~
In

es") are

303 F.3d 161,

166 (2d Cir. 2002).

A district court reviews matters within a bankruptcy
court's discretion under an
~~~~~~~-=~~~~,

of discretion st

rd. In re

166 B.R. 546, 549 50 (S.D.N.Y. 1994)
7

(internal citations omitted).
thus,

"The standard to be applied is

'not what this Court would have done under the same

circumstances, but whet

r, in light of the record as a whole,

the bankruptcy court's decision was reasonable.'"
(quoting In re United Merchants and

Mf~s.,

Id. at 550

Inc., 126 B.R. 149,

150 (S.D.N.Y. 1991)).

In

tion, "[a]n appeal from the

al of a motion

relief under Rule 60(b) brings up only the denial of
motion and not the [merits of the underlying]
Rosenda

judgment itself."

v. Iuliano, 67 Fed. Appx. 10, 12 (2d Cir. 2003)

(alteration in original).

Courts

denial of a Rule 60(b) motion should
interest of providing f

ewing an appeal of a
ar in

nd that, in the

lity to litigating parties, "final

judgments should not be lightly reopened," Nemaizer v. Baker,
793 F.2d 58, 61 (2d Cir. 1986), and therefore
from a f
favo

nting relief

1 order pursuant to Rule 60(b) is "generally not
and is properly grant

exceptional circumstances."

only upon a showing of
U.S. v. Int'l Bhd. Of Teamsters,

247 F.3d 370, 391 (2d Cir. 2001).

The Bankruptcy Court Correctly Held That IDOR's Rule 60(b)
Motion Was Untimely

As

lained by the Second Circuit,
8

Rule 60(b) lists six grounds

"reliev[ing]" a party from a final judgment:

(1)
stake, inadvertence, surprise, or
excusable neglect; (2) newly discovered
evidence which by due diligence could not
have been discove
in time to move for a
new trial under Rule 59 (b); (3)
(whether heretofore denominated intrinsic or
extr sic),
s
sentation, or
misconduct of an adverse party; (4) the
judgment is void; (5) the judgment has
en
satisfied, released, or discha
,or a
ior judgment on whi
it is bas
has been
reversed or
rwise vacated, or it is no
I
equitable that the judgment should
have
spective
ication; or (6) any
other reason justifying relief from the
operation of the judgment.

Bel

r & Keller v.

120 F.3d 21, 23

statutory deadline

(2d Cir. 1997).

r filing a motion

relief

pursuant to Rule 60(b) is dependent upon the substantive basis
for the motion.
(3) enumerat
after t

If t

motion is made for reasons (1),

above, it must be fil

(2) or

no later than one year

entry of the judgment or order or the

te of the

proceeding from whi

relief is sought, whereas if the motion is

made for reasons (4),

(5) or (6), it must s

"within a reasonable time."

y be fil

Fed. R. Civ. P. 60(c) (1)

60(c)(1)").

9

("Rule

In filing its Rule 60(b) Motion seeking relief from
motion as seeking

the Bar Date Order, IOOR characterized t
relief under Rule 60 (b) (4)

(" (b) (4)"), on the grounds t

the

Bar Date Order was void since it was contrary to 28 U.S.C. § 960
11 u. S . C . § 503 ( "§ 5 0 3"), whi

("§960")
operated to

lude the imposition of administrative bar dates

upon taxing agencies.

See Bankr. Okt. 1228.

Bankruptcy Court rejected that
he

according to IOOR,

However, the

racterization, and instead

that IOOR's Rule 60(b) Motion could only

seeking relief pursuant to Rule 60 (b) (1)
IOOR's argument that t

("

considered as

(b) (1) "), because

Bar Date Order was contrary to

statutory law raised an issue of legal error by
Court.

7/17 Tr. at 29.

a one
and

The Bankruptcy Court there

r statute of limitations appli

the motion was t

more than one year a

Bankrupt
re held

to IOOR's motion,

fore untimely since it was fil

r the ent

of the Bar Date

r.

Id.

IOOR has contended that the Bankruptcy Court erred
holding

was brought under section

its Rule 60(b) Mot

(b) (1) rather than section (b) (4).
60(b) Motion shou
relief on

According to IOOR,

have been properly characte

its Rule

zed as see

basis of voidness because it was undi

ed that

IOOR did not receive notice of the Bar Date Motion, and
constituted a denial of due process
10

ng

had the effect of

is

rendering

Rule 60(b) purposes.

Bar Date Order "void"

Illinois Department of Revenue's Opening Brief ("IDOR Br.") at

12.

While

is correct in that a bankruptcy court's

judgment is cons ide

"void" for Rule 60(b) purposes when

premised upon a due process violation, United Student Aid Funds
559 U.S. 260, 271

Inc.
ation occurred

reo

(2010), no due process

Although IDOR did not receive notice

of the Bar Date Motion, it is undisputed that (i)

IDOR did

receive notice of the Bar Date Order the day after its entry,
whi

was thirty-six days prior to

imposition of the Bar

Date, Bankr. Dkt. 1030, 1034; and (ii) IDOR did not appeal the
Bar Date Order until it fil
fi

its Rule 60(b) Motion more than

months after the Bar Date Order's entry, Bankr. Dkt.

1228.

if a

The Supreme Court has held
notice of a bankruptcy court's judgment"
1 expires,

that party

fore the time

s been afforded a full and fair
party's

opportunity to litigate, and

of that opportunity will not justi
Espinosa, 559 U.S. at 276.

rty receives

Here,

Rule 60(b)(4) relief./I
IDOR received notice of the

Bar Date Order the day after it was ente
11

ilure to avail itself

and thus was

afforded ample time within which to appeal, and yet it not only
iled to appeal prior to the actual Bar Date, but also wait
until more

fifteen months had passed a

Bar Date Order to do so.

As noted by

er the

of the

Supreme Court in

Espinosa, "Rule 60(b) (4) does not provide a license for
litigants to s

on their rights," 559 U.S. at 275, which is

precisely what rOOR is gui

instant

y of having done in

Since the Bankruptcy Court's issuance of the Bar Date
Order did not constitute a denial of IOOR's right to
process, the Bankruptcy

to

was correct in construing IOOR's

Rule 60(b) Motion as a motion pursuant to section (b) (1) t
was premised upon an argument of legal error (rather t
voidness).

Acco

ngly, a one-year statute of 1

applicable to IDOR's Rule 60(b) Motion,
correctly deni
Date

3

IDOR's motion

tation was

the Bankruptcy Court

brought 15 months after the Bar

r - as untimely.4

It is worth noti
that IOOR has not offered
explanation
r its 15-month delay in appealing the Bar Date Order.

S
the Bankruptcy Court's
ial of IOOR's Rule 60 Motion
was correct, its denial of IOOR's
59 Motion as moot was
appropriate as well.
4

12

Conclusion

Bas

on the cone

Dismissal Order and August 6

lons set forth above, the
r are affirmed, and t

is dismissed.

New York, NY
September
(~, 2013

C/7

(eIj~£?:/<-t:
ROBERTW.

SWEET

U.S.D.J.

13

appeal