In re TTC Ill. Inc.

617 B.R. 894

IN RE TTC ILLINOIS INCORPORATED, et. al., Debtors.

Case No. 01-92550

United States Bankruptcy Court, C.D. Illinois.

Signed June 24, 2020

John A. Lipinsky, Clingen Callow & Mclean LLC, Lisle, IL, Paul Richards, Kavanagh Grumley & Gorbold LLC, Joliet, IL, for Debtors.

OPINION

Mary P. Gorman, United States Bankruptcy Judge

Before the Court is a "Motion to Reopen Case For the Limited Purpose of Directing Illinois Department of Revenue to Release Illinois Protest Monies Act Deposit Consistent with Orders of this Court and Related Relief" ("Motion to Reopen"). The Motion to Reopen was filed by Oak Point Partners, LLC ("Oak Point"), in its claimed capacity as "successor by acquisition to the residual assets" of the bankruptcy estates administered in this case. For the reasons set forth herein, the Motion to Reopen will be denied.

I. Factual and Procedural Background

A. The TTC Chapter 11 Bankruptcy

TTC Illinois, Inc., and TTC Holdings, Inc., (collectively "TTC") filed voluntary petitions under Chapter 11 on September 4, 2001.¹ The cases were promptly consolidated. ²

Prior to its bankruptcy filing, TTC operated a professional employer organization, providing personnel management services to clients in a variety of industries. According to TTC, it did business in forty states, employed as many as 25,000 people through its service agreements, and had gross revenue in 2000 in excess of $600 million dollars. TTC offered its clients a variety of personnel-related administrative services including payroll, tax withholding, workers' compensation insurance, and other employee benefits.

According to TTC, its financial problems began in late 2000 when it learned that it workers' compensation insurance carrier was being audited by the state of Ohio. TTC began looking for alternate coverage and, in early 2001, was able to obtain workers' compensation insurance coverage through a new carrier. But the new carrier turned out not to be licensed and was engaged in a fraudulent scheme targeted directly at companies like TTC that provide personnel services.³ TTC's search for legitimate workers' compensation coverage continued without success until early August 2001 when it determined that it was not going to be able to acquire the coverage and terminated all of its service agreements with its clients. Many of TTC's clients filed suits against it for breach of contract and the bankruptcies were filed in September 2001.

TTC filed and subsequently obtained confirmation of a liquidating Chapter 11 plan. Ultimately, TTC recovered almost $900,000 from the liquidation of its assets and collected over $5.5 million dollars from litigation, including actions against the insurance carrier that had provided it with directors' and officers' coverage and against an insurance broker that had placed some of the problematic workers' compensation coverages.

By March 2005, TTC's only secured creditor, Fifth/Third Bank, had been paid in full, and TTC turned its attention to reviewing priority claims. The process was complicated by the fact that TTC had originally hired a claims agent to receive claims but then terminated the claims agent for poor performance. The agent's database of claims was not transferable to the Court's electronic filing system, and TTC's attorneys were required to manually review paper claims. The process took years, but eventually all employee, taxing authority, and other priority claims were reviewed and resolved. Because the amount of funds collected was insufficient to pay priority claims in full, general unsecured claims were not reviewed.

On December 11, 2015, TTC filed its Chapter 11 Final Report and Accounting providing details on the distribution of funds pursuant to the liquidating plan. TTC reported that all administrative expense and wage claims had been or were being paid in full and that priority tax claims would be paid in a final distribution with the expected payment to be approximately 50% of each allowed priority claim. TTC's Motion for Final Decree was also filed December 11, 2015, and was granted on January 27, 2016. The case was closed on February 11, 2016.

B. The Illinois Department of Revenue's Claims and Issues

TTC's issues with the Illinois Department of Revenue ("IDOR"), to the extent relevant here, date back to at least 1992. IDOR filed timely claims for taxes due for 1992, 1993, 1994, 1995, 1996, and 1998. Several years after the bar date for filing claims had run, IDOR filed an amended claim, identifying additional tax liability for 1996 and including a new claim for 1997 taxes. Based on an objection filed by TTC, the claim for 1997 taxes was disallowed as untimely. Ultimately, TTC and IDOR stipulated to the allowance of IDOR's priority claims in an amount slightly in excess of $1.8 million dollars.

Relevant to the issues here are a portion of the taxes due to IDOR for 1997. In 1998, IDOR disputed the accuracy of TTC's 1997 Illinois Corporate Income and Replacement Tax return. The dispute concerned whether TTC was actually the employer of certain individuals and whether those individuals should be considered employees for purposes of determining certain payroll and sale tax apportionment factors for tax return purposes. On November 24, 1998, in order to obtain a resolution of the issue, TTC filed an amended tax return and paid the $46,481 claimed due by IDOR under protest. On the same day, TTC filed an action in the Circuit Court of Cook County, Illinois, against IDOR and various state officers under a section of the Illinois State Officers and Employees Money Disposition Act (commonly referred to as the Protest Monies Act) seeking a refund of the taxes paid under protest.⁴ See 30 ILCS 230/1, 2a. As required by the Protest Monies Act, TTC promptly sought and obtained an injunction requiring the State Treasurer to hold the taxes paid under protest in its protest fund account and not to deposit the funds into the general revenue accounts of the State pending further order of court.

At the time of the bankruptcy filings in September 2001, the Protest Monies Act case was still pending in Cook County. During the pendency of this case, neither TTC nor IDOR sought to have the Protest Monies Act issues resolved either in the bankruptcy court or the state court. Neither IDOR's amended claim that included 1997 taxes nor TTC's objection to that claim specifically raised the Protest Monies Act issues. The Protest Monies Act case remains pending in Cook County.

C. The Motion to Reopen

The Motion to Reopen was filed by Oak Point as successor by acquisition to the residual assets of the TTC estates. Attached to the Motion to Reopen is a Purchase Agreement and Assignment of Claims and Interests ("Purchase Agreement") signed by TTC and Oak Point on December 23, 2015. The Purchase Agreement provides for the transfer to Oak Point of all of TTC's rights in "Remnant Assets" that were defined as property of TTC "consisting of known or unknown assets or claims which have not been previously sold, assigned, transferred, encumbered or resolved." Oak Point agreed to pay TTC $5000 for the Remnant Assets and to take the Remnant Assets in "AS IS, WHERE IS" condition and without any warranties. No listing of any known assets included in the sale was attached to the Purchase Agreement.

In its Motion to Reopen, Oak Point claims that the disallowance of IDOR's claim for 1997 taxes based on its failure to file a timely claim for that year resulted in a substantive determination that taxes for that year cannot be collected. Oak Point also alleges that IDOR served as a custodian of the funds paid under protest and therefore had a duty to turn over those funds to TTC when the case was filed.⁵ It also argues that the injunction language in the confirmed liquidating plan prohibits IDOR from enforcing its rights in the taxes paid under protest.

IDOR counters that the denial of its claim for 1997 taxes was a procedural decision based on the untimely filing and resulted only in IDOR not sharing in the liquidation distribution for those taxes. IDOR argues that the decision did not reach the merits of any issues related to the claimed taxes due and, in particular, did not reach the merits of the Protest Monies Act litigation that was not mentioned in the claim, the claim objection, or the Court's order finding the claim untimely. Likewise, IDOR claims that it has an ownership interest in the taxes paid under protest that was not divested by any order entered during the pendency of the bankruptcy case and that it may litigate the Protest Monies Act case now notwithstanding the injunctive provisions of the confirmed plan. IDOR also says that, because some of its allowed claims were not paid in full, even if TTC or its successor, Oak Point, were to prevail on the substance of the Protest Monies Act litigation, IDOR could use any refund due to satisfy other outstanding tax liabilities of TTC.

The issues have been fully briefed by the parties and are ready for decision.

II. Jurisdiction

This Court has jurisdiction over the issues before it pursuant to 28 U.S.C. § 1334. All bankruptcy cases and proceedings filed in the Central District of Illinois have been referred to the bankruptcy judges. CDIL-Bankr. LR 4.1; see 28 U.S.C. § 157(a). The decision on whether to reopen this case under the circumstances presented relates to the administration of the case and is a core proceeding. 28 U.S.C. § 157(b)(2)(A). The issue of reopening arises from the Debtor's bankruptcy itself and from the provisions of the Bankruptcy Code and may therefore be constitutionally decided by a bankruptcy judge. See Stern v. Marshall , 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011).

III. Legal Analysis

A. Reopening Standards

A closed bankruptcy case may be reopened "to administer assets, to accord relief to the debtor, or for other cause." 11 U.S.C. § 350(b). A bankruptcy court is not required to reopen a case when requested to do so; rather, a decision regarding reopening...