Free Proposed Findings of Uncontroverted Fact - District Court of Federal Claims - federal

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No. 05-738 T (Judge Wheeler)

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

BROWNING-FERRS INDUSTRIES, INC. & SUBSIDIARIES,

Plaintiff
v.

THE UNITED STATES,

Defendant

FACTUAL APPENDIX TO OPPOSITION BY THE UNITED STATES TO PLAINTIFF'S MOTION FOR VOLUNTARY DISMISSAL WITHOUT PREJUDICE PURSUANT TO RCFC 41 (a)(2) AND FOR DISMISSAL OF COUNTERCLAIM PURSUANT TO RCFC 12(b)(1)
EILEEN 1. O'CONNOR Assistant Attorney General

DAVID GUSTAFSON STUART J. BASSIN JENNIFER D. SPRIGGS JACOB E. CHRISTENSEN Attorney of Record U.S. Deparment of Justice Tax Division Federal Claims Section Court of Post Office Box 26

Ben Franlin Post Office Washington. D.C. 20044
(202) 307-6418 (202) 307-2504 (Fax)

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FACTUAL APPENDIX:
Index
Declaration of Martha Goodrich .................................................. 1 Declaration of Stuart Bassin ..................................................... 3

Complaint 23 8 Reply to Counterclaim
Transcript of

First Amended Answer and Counterclaim 17

hearing, dated August 29,2006 27

Letter, dated August 3l, 2006, from Internal Revenue Service to

BPI Waste Systems of America 64

Amended U.S. Corporation Income Tax Retur fied by Browning Ferris Industries, Inc. on May 12, 2005, for period ending Sept. 30, 1997 65 Amended U.S. Corporation Income Tax Retur fied by Browning Ferris Industries, Inc. on May 12,2005, for period ending Sept. 30, 1998 71 Amended U.S. Corporation Income Tax Retur fied by Browning Ferris

Industries, Inc. on May 12,2005, for period ending July 31, 1999 78
Letter, dated May 2005, requesting immediate disallowance of

refund claims 84

Amended U.S. Corporation Income Tax Return filed by Browning Ferris Industries, LLC on August 22, 2006, for period ending Sept. 30, 1997 87 Amended U.S. Corporation Income Tax Return filed by Browning Ferris Industries, LLC on August 22, 2006, for period ending Sept. 30, 1998 92

Amended U.S. Corporation Income Tax Return fied by Browning Ferris Industries, LLC on August 22, 2006, for period ending July 31, 1999 98

Amended U.S. Corporation Income Tax Retur fied by BFI Waste Systems

on August 22, 2006, for period ending Sept. 30, 1997 l04
Amended U.S. Corporation Income Tax Return fied by BPI Waste Systems

on August 22, 2006, for period ending Sept. 30, 1998 l09
Amended U.S. Corporation Income Tax Return fied by BFI Waste Systems

on August 22, 2006, for period ending July 31, 1999 115
Excerpts, Form lO-K filing by Alled Waste Industries, Inc. for 2005 fiscal year 121

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Federal Income Tax Return (Form 1120) for Browning Ferris Industries, Inc.

for period ending Sept. 30, 1998 124
and Subsidiaries for period ending Sept. 30, 1999 125

Federal Income Tax Return (Form 1l20) for Browning Ferris Industries, Inc.

Browning Ferris Industries, Inc., Board resolution, dated December 31,2004 126

Certificate of Conversion From A Corporation to a Limited Liability

Company for Browning Ferris Industries 130
Federal Income Tax Retur (Form 1120) for Alled Waste Industries, Inc.

and Subsidiaries for 2004 135

Corporation Application for Tentative Refund (Form 1139) for Browning-

Ferris Industries, Inc., dated July 27, 2000 l58

Correspondence and Check, dated April 25, 2005 159
Certified documents filed with the Arizona Corporation Commission 163

Transcript, Deposition of Elaine Kuether l80 Transcript, Deposition of Dale Parker 203

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

No. 05-738 T (Judge Wheeler)
BROWNING-FERRS INDUSTRIES & SUBSIDIARIES,

Plaintiff
v.

THE UNITED STATES,

Defendant

DECLARATION OF MARTHA GOODRICH

I, Martha Goodrich, pursuant to the provisions of 28 U.S.C., Section 1746, state as
follows:
1. I am a Revenue Agent employed by the Internal Revenue Service (the "Service")

and based in Phoenix, Arizona.
2. In that capacity, I am currently assigned as a Team Coordinator responsible for

supervising other Service employees engaged in a continuing audit of the consolidated federal
income tax returns fied by Alled Waste Industres, Inc. (Allied) and its affiliates.
3. As part of

that audit, I am familiar with many facts related to the activities of

subsidiaries of Alled, including the companies which previously fied a consolidated return in
the name of

Browning-Ferrs Industres, Inc. and Subsidiaries.

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4. Based upon that knowledge, I can attest to the accuracy of the statements set forth
in the following paragraphs 5 through 9.
5. During the years in suit, 1997 and 1998, Browning- Ferrs Industres, Inc. (BFI

Inc.) was the parent company of a large corporate group consisting of more than i 00 subsidiary

corporations engaged in the waste disposal business, which fied consolidated federal income tax
returns in the name of

"Browning-Ferrs Industres, Inc. & Subsidiaries" and the employer

identification number of74-1673682 (the "BFI Consolidated Group").
6. BFI Inc. fied federal income tax returns for the BFI Consolidated Group on a

fiscal year basis with each year ending on September 30. When the BFI Consolidated Group

was acquired by Alled, its fiscal year closed on the date of acquisition-July 30, 1999-and a final
federal income tax return was filed. Thereafter, neither BFI Inc. nor the BFI Consolidated Group
filed separate federal income tax returns.

7. Following the acquisition, BFI, Inc. filed a final return on behalf of its

consolidated group for the period up to the acquisition, claiming more than $900 milion in
capital

loss deductions arising out of the contingent liability transaction.
8. For the post-acquisition years, Alled, Alled's subsidiaries, and the former

members of the BFI Consolidated Group fied a single consolidated return in the name of "Alled
Waste Industres, Inc. and Subsidiaries."
9. The BFI Consolidated Group has availed itself of

tax benefits derived from

approximately $l 00 million of the claimed capital losses related to the contingent liability

transaction in its 1997 and 1998 tax years. Allied (in its capacity as the parent of the BFI
Consolidated Group) has sought to apply approximately $720 millon of

the remaining capital

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losses against its taxable income in its 1999 through 2002 tax years. Plaintiff

has, to date, not

sought to apply the remaining $90 milion in losses against any other tax liability.

I declare under penalty of perjury that the foregoing is tre and correct.

Executed in Phoenix, Arizona, on November l!, 2006.

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

No. 05-738 T (Judge Wheeler)
BROWNING-FERRIS INUSTRIES & SUBSIDIARIES,

Plaintiff
v.

THE UNITED STATES,

Defendant

DECLARATION OF STUART J. BASSIN

I, Stuart J. Bassin, pursuant to the provisions of28 U.S.C., Section 1746, state as follows:
1. I am an attorney employed by the United States Department of Justice.

2. In that capacity, I am currently assigned as attorney of record in this litigation.

3. I have personal knowledge of the facts set forth in this declaration.

4. In my offcial capacity, I have access to the Court's electronic fies in this case.
The documents attached hereto at pages 8-83 are excerpts from documents fied with the Cour in
this case.
5. In my official capacity, I participated in depositions taken in this case. The
documents attached hereto at pages 180-288 are transcripts of the depositions of

Dale Parker

(including an errata sheet) and Elaine Keuther. During those depositions, the documents attached
hereto at pages 84- 1 79 were authenticated by the witnesses.

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6. Attached hereto are copies of the following documents--

Description
Complaint

Pages
8

First Amended Answer and Counterclaim
Reply to Counterclaim
Transcript of

17

23

hearing, dated August 29,2006

27

Letter, dated August 3l, 2006, from Internal Revenue Service to BFI Waste Systems of America

64

Amended U.S. Corporation Income Tax Retur filed by Browning Ferris Industries, Inc. on May 12, 2005, for period ending Sept. 30, 1997

65

Amended U.S. Corporation Income Tax Retur fied by Browning Ferris Industries, Inc. on May l2, 2005, for period ending Sept. 30, 1998
Amended U.S. Corporation Income Tax Retur filed by Browning Ferris Industries, Inc. on May 12,2005, for period ending July 31, 1999
Letter, dated May 2005, requesting immediate disallowance of refund claims

71

78 84

Amended U.S. Corporation Income Tax Retur filed by Browning Ferris Industries, LLC on August 22, 2006, for period ending Sept. 30, 1997 Amended U.S. Corporation Income Tax Retur filed by Browning Ferris Industries, LLC on August 22, 2006, for period ending Sept. 30, 1998

87

92

Amended U.S. Corporation Income Tax Retur fied by Browning Ferris Industries, LLC on August 22, 2006, for period ending July 31, 1999
Amended U.S. Corporation Income Tax Retur fied by BFI Waste Systems on August 22, 2006, for period ending Sept. 30, 1997
Amended U.S. Corporation Income Tax Return fied by BPI Waste Systems on August 22, 2006, for period ending Sept. 30, 1998

98

104

109

1/ In some instances, I have not included portions of voluminous documents which are not germane to the issues presented by the pending motion.

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Amended U.S. Corporation Income Tax Retu fied by BFI Waste Systems

on August 22, 2006, for period ending July 31, 1999 115
Excerpts, Form 10-K filing by Alled Waste Industries, Inc. for 2005 fiscal year 121
Federal Income Tax Retur (Form 1120) for Browning Ferris Industries, Inc.

for period ending Sept. 30, 1998 124
and Subsidiaries for period ending Sept. 30, 1999 125

Federal Income Tax Retur (Form 1120) for Browning Ferris Industries, Inc.

Browning Ferris Industries, Inc., Board resolution, dated December 31, 2004 126

Certificate of Conversion From A Corporation to a Limited Liabilty

Company for Browning Ferris Industries 130
Federal Income Tax Return (Form 1120) for Alled Waste Industries, Inc.

and Subsidiaries for 2004 135

Corporation Application for Tentative Refud (Form 1139) for Browning-

Ferris Industries, Inc., dated July 27,2000 158

Correspondence and Check, dated April 25, 2005 159
Certified documents fied with the Arizona Corporation Commission 163

Transcript, Deposition of Elaine Kuether 180

Transcript, Deposition of Dale Parker 203
7. Tax Division attorneys are required to report the number of

hours they devote to

work on individual cases on a regular basis. That data is collected electronically. As ofthis date,
the Tax Division's records indicate that more than 1100 hours of attorney time have been expended
on this case.

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I declare under penalty of perjury that the foregoing is true and correct.

Executed in Washington, D.C. on November 22,2006.

STUART J. BASSIN

Aif~ f

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rl f"rl'f~"'" T r' o \~.' .~ ECF-_~_, _ I l-iLED
IN THE UNITED STATES COURT OF FEDERAL CLAIMS JUl - 8 2005
BROWNING-FERRIS INDUSTRIES, INC. & )
US. COURT OF FEOERAL CLAIMS

SUBSIDIARIES )

v. )
"Defendant"), and alleges as follows:

Plaintiff: )
) ) )

)

,. .Il' 5 ''''
. '.,, ~ It .

('IV;

;738T

THE UNITED STATES OF AMERICA, )

Defendant. )

COMPLAINT
Plaintiff, Browning-Ferrs Industries, Inc. & Subsidiares (hereinafter, "BFI" or the
"Plaintiff'), brings this suit against the Defendant, the United States of Amerca (hereinafter, the

OVERVIEW OF THE COMPLAINT
i. This is a tax dispute arsing under the Intemal Revenue Code, Title 26 of the

United States Code, in which BFI seeks a refund of erroneously assessed and collected federal
income taxes of $ 1 8,549,092 for the taxable year ended September 30, 1997 and $9,711,5 I 4 for

the taxable year ended September 30, 1998 (hereinafter, the "1997 and 1 998 tax years,"

respectively). The sole substantive issue to be resolved in this action involves BFI's capital loss

in connection with the sale of stock in the taxable year ended July 30, 1999 (hereinafter, the
"1999 tax year"), which impacts BFl's federal income tax for the 1997 and 1998 tax years.
2. Jurisdiction is conferred upon this Court by Title 28, United States Code, section

1491, and Title 26, United States Code, section 7422.
3. BFI is a corporation organized under the laws of the State of Delaware. BFI's

employer identification number is 74-1673682.

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4. BFI was the common parent of an affliated group of corporations that fied
consolidated federal income tax returns for the tax years at issue. Pursuant to Treas. Reg.

§ 1. i 502-77(a), BFI is duly authorized to act in its own name with respect to all matters relating

to the tax liability of the atlliated group of corporations of which it was the common parent for
all periods relevant to this action. The ter "BFI" as used herein refers to BFI, the consolidated

group, or the applicable members of the group, as appropriate.
5. Defendant is the United States of America.

FACTS RELATING TO THE CAPITAL LOSS ON THE SALE OF STOCK
6. On July 30, 1999, Alled Waste Industries, Inc. (hereinafter, "Allied") acquired
substantially all of

the outstanding stock ofBFI.

7. Prior to the acquisition, BFI utilized a large in-house staff

to manage the liabilties

arising from its operations. In contrast, Alled utilized a small in-house staff and outsourced

most of its environmental management, risk management and other expertise.
8. In July 1999, shortly before the close of the acquisition, BFI restrctured the

management of certain contingent liabilities in a manner consistent with Alled's outsourcing

approach and to provide a legal structure that would foster the effective management of the

liabilties. The contingent liabilities were liabilties arising from BFl's waste management
operations, including, but not limited to, post-closure costs associated with closed landfills,
closure and other costs associated with active landfills, costs associated with Superfund matters,
costs associated with hazardous waste management, and remediation costs associated with

chemical waste management.

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9. As a replacement for its heavily staffed internal department, SFI established six

separate liability management companies based on the specific expertise needed for the

management of the liabilities and compliance with the applicable regulatory laws.
i O. In order to consolidate the liabilities into the corresponding liability management

companies, BFI contributed certain notes in the aggregate amount of $902,561,661 to the
liability management companies in exchange for (i) Class B Common Stock of the liability

management companies, and (ii) the assumption of contingent liabilities by the liabilty
management companies in the aggregate amount of$901,660,007.
11. BFI then sold the shares of Class B Common Stock to environmental and

insurance consultants with considerable expertise in the liabilities managed by the respective
liability management company (hereinafter, the "Consulting Investors"). The ownership of the
stock provided an equity incentive for the Consulting Investors to aggressively identify and take
advantage of cost-saving opportunities in managing the liabilities.
12. The liability management companies have been helpful to the management of the

liabilities and they have considered numerous cost containment strategies, many of which have
been implemented and have helped to achieve cost saving relating to the liabilities.
13. The aggregate amount realized by BFI on the sale of the Class B Common Stock

to the Consulting Investors in the 1999 tax year was $901,654. BFl's aggregate tax basis in the

Class B Common Stock was $902,561,661, an amount which is the sum of the tax basis of the
property that BFI contributed to the liabilty management companies and which is unreduced by

the liability management companies' assumption of the contingent liabilities. Consequently,
BFI's sale of the Class B Common Stock resulted in an aggregate capital loss of $901,660,007 in
the 1999 tax year.

3

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14. BFT is entitled to offset this capital loss against capital gain net income of
$80,923,602 in the i 999 tax year and, as a result, incurred an additional net operating loss of

$80,923,602 in the 1999 tax year.

COUNT ONE (1997 Tax Year)

15. BFI reincorporates the allegations set forth in paragraphs 1 through 13, above, as
if

fully set forth herein.
16. Pursuant to RCFC 9(h)(6), BFI states the following:

a) On or about June 16, 1998, BPI filed its federal income tax return for the

i 997 tax year with the IRS in Houston, Texas. The name, address, and employer identification
number ofthe taxpayer appearng on the tax return are as follows:

BROWNING-FERRIS INDUSTRIES, INC. & SUBSIDIARIES 757 N. ELDRIDGE HOUSTON, TEXAS 77079 EIN: 74-1673682
b) On or about the following dates, BFI made payments of income tax in the

following amounts for the 1997 tax year to the Internal Revenue Service Center in Austin, Texas:
DATE PAID OR REFUNDED
January 15, 1997

AMOUNT PAID (REFUNDED)

$19,000,000

March 17, 1997
June i 6, 1997
September 15, 1997

47,500,000
25,000,000 26,000,670
( 15,000,000)

December 18, 1997
January 15, 1998

(46,086,008) (32.709.291)

August 28,2000

4
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Total

$23.705.3)1

c) On or about April 25, 2005, BFl made a payment of additional tax in the

amount of $ i 9,079,286 to the IRS Appeals Offce in Houston, Texas, which forwarded the
payment to an IRS Service Center.

d) The net amount of tax paid by BFI with respect to the i 997 tax year is
$42,784,657.

e) On or about May 5, 2005, BFI filed a timely claim for refund of
$18,549,092 of

the $42,784,657 in taxes paid for the 1997 tax year with the IRS Appeals Offce

in Houston, Texas. A copy of BFl's claim for refund for the 1997 tax year is attached as Exhibit
A hereto and incorporated by reference.
f) The name, address, and employer identification number of the taxpayer

appearing on the BFI claim for refund for the 1997 tax year are as follows:
BROWNING-FERRIS INDUSTRIES, INC. & SUBSIDIARIES 15880 N. GREENWAY-HAYDEN LOOP, SUITE 100 SCOITSDALE, ARIZONA 85260 EIN: 74-1673682

g) The IRS denied BFl's claim for refund for the 1997 tax year pursuant to a
notice of disallowance dated May 10, 2005, thereby allowing BFI to bring suit in accordance
with Title 26, United States Code, section 6532. A copy of

the notice of disallowance is attached

as Exhibit B hereto and incorporated by reference.

17. As a result of the capital loss incurred on the sale of the Class B Common Stock

and the resulting additional net operating loss in the 1999 tax year, BFI is entitled to an
additional net operating loss carryback from the i 999 tax year to the 1997 tax year in the amount

of$80,923,602.

5

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18. For the reasons set forth above, BFI is entitled to an income tax refund of at least

$ 18,549,092 for the 1997 tax year, or such greater amount as is legally refundable, plus interest
thereon as provided by law.

COUNT TWO (1998 Tax Year)

19. BFI reincorporates the allegations set forth in paragraphs 1 through 17, above, as
if fully set forth herein.
20. Pursuant to RCFC 9(h)(6), BFI states the following:

a) On or about June 15, 1999, BFI filed its federal income tax return for the

i 998 tax year with the IRS in Houston, Texas. The name, address, and employer identification
number of the taxpayer appearing on the tax return are as follows:
BROWNING-FERRIS INDUSTRIES, INC. & SUBSIDIARIES 757 N. ELDRIDGE HOUSTON, TEXAS 77079 EIN: 74-1673682

b) On or about the following dates, BFI made payments of income tax in the
following amounts for the 1998 tax year to the Internal Revenue Service Center in Austin, Texas:
DATE PAID OR REFUNDED
Januar 15, i 998
January 15, 1998

AMOUNT PAID (REFUNDED)
$26,000,000
46,086,008 24,000,000
50,000,000

March i 6, 1998
June 15, 1998

December 18, i 998

(45,086,008)
(28,871,579)
(9 .498.799)

July 8, 1999

August 28, 2000

6

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Total

$Q.629.622

c) On or about April 25, 2005, BFI made a payment of additional tax in the
amount of $3,519,979 to the IRS Appeals Offce in Houston, Texas, which forwarded the

payment to an IRS Service Center.

d) The net amount of tax paid by BFI with respect to the 1998 tax year is
$66,149,601.

e) On or about May 5, 2005, BFI filed a timely claIm for refund of
$9,711,514 of

the $66,149,601 in taxes paid for the 1998 tax year with the IRS Appeals Offce in

Houston, Texas. A copy of BFl's claim for refund for the i 998 tax year is attached as Exhibit C
hereto and incorporated by reference.
f) The name, address, and employer identification number of the taxpayer

appearing on the BFI claim for refund for the 1998 tax year are as follows:
BROWNING-FERRIS INDUSTRIES, INC. & SUBSIDIARIES l5880N. GREENWAY-HAYDEN LOOP, SUITE LOO SCOTTSDALE, ARIZONA 85260 EIN: 74-1673682

g) The IRS denied BFI's claim for refud for the 1998 tax year pursuant to a
notice of disallowance dated May 10, 2005, thereby allowing BFI to bring suit in accordance
with Title 26, United States Code, section 6532. A copy oftbe notice of disallowance is attached
as Exhibit B hereto and incorporated by reference.
21. As a result of the capital

loss incurred on the sale of the Class B Common Stock

and the resulting additional net operating loss in the 1999 tax year, BPI is entitled to an
additional net operating loss carryback from the 1999 tax year to the 1997 tax year in the amount

of $80,923,602, which reduces BFl's tax liability tor the 1997 tax year by $18,549,092, or such
greater amount as is legally refundable.

7

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22. As a result thereof, BFI is subject to alternative minimum tax in the amount of

$3,325,937 in the 1997 tax year and is not allowed a nonconventional source fuel credit in the
amount of $6,385.577 in the 1997 tax year, but is entitled to a corresponding minimum tax credit

in the amount of $9,71 1,514 in the 1998 tax year.
23. For the reasons set forth above, BFI is entitled to an income tax refund of at least

$9,71 1,514 for the 1998 tax year, or such greater amount as is legally refundable plus interest
thereon as provided by law.

WHEREFOREt BFI prays for judgment in its favor and against the Defendant:
1. In the amount of $ 18,549,092 for the 1997 tax year, or such greater amount as is

legally refundable, plus interest thereon as provided by law;
2. In the amount of $9,711,514 for the 1998 tax year, or such greater amount as is

legally refundable, plus interest thereon as provided by law;
3. For the costs and disbursements of this action, and such other and further relief as

this Court deems just and proper.

Dated this \, ,\\. day of July, 2005.
Respectfully submitted,

~~ Â-~~~
ROBERT F. DENVIR Winston & Strawn LLP 35 West Wacker Drive
Chicago, Ilinois 60601

Phone: (312) 558-5675
Fax: (312) 558-5700
Attorney of Recordfor the Plaintif
Of counsel:

JAMES M. LYNCH
PETER W. POULOS

8

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Winston & Strawn LLP 35 West Wacker Drive
Chicago, Ilinois 6060 I

Phone: (312) 558-5600
Fax: (312) 558-5700

JAMES L. MALONE II Winston & Strawn LLP 200 Park Avenue New York, New York 10166 Phone: (212) 294-6700 Fax: (2 i 2) 294-4700

9
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IN THE UNITED STATES COURT OF FEDERA CLAIMS
No. 05-738 T (Judge Thomas C. Wheeler)

BROWNING-FERRS INUSTRIES, INC. & SUBSIDIARES,
Plaintiff
v.

THE UNTED STATES,
Defendant

FIRST AMNDED ANSWER AND COUNTERCLAIM

As its first amended answer to the complaint, defendant denies each and every
allegation therein that is not admitted below.

Defendant further:

1. Admits the allegations in paragraph 1, except denies that the taxes in dispute
were erroneously assessed and collected; denies that plaintiff is entitled to the relief it
seeks.
2. Denies that

jurisdiction is conferred on this Court by 26 U.S.C. § 7422; admits

the remaining allegations in paragraph 2.

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(c) Admits the allegations in paragraph 16(c).
(d) States that the net tax plaintiff

paid for 1997 was $42,783,987, rather

than $42,784,657 as alleged by plaintiff in paragraph 16( d).

(e) Admits the allegations of paragraph 16( e), except states that taxes paid for 1997 totaled $42,783,987, rather than $42,784,657 as alleged in
paragraph 16( e).

(f)-(g) Admits the allegations in paragraphs 16(f)-(g).
17-18. Denies the allegations in paragraphs 17-18.

19. Defendant reincorporates its responses to the allegations contained in
paragraphs 1 through 17, above.
20. (a) Admits the allegations in paragraph 20(a).

(b) Admits the allegations of

paragraph 20(b), except states that on January

15, 1998, plaintiffs 1998 account was credited with $46,086,008, which was

transferred from plaintiff s 1997 income tax account; states that a refund of

$9,498,799 was made on August 2,2000, rather than August 28,2000, as alleged
in paragraph 20(b ).

(c)-(g) Admits the allegations in paragraphs 16(c) through 16(g).

21. Denies the allegations in paragraph 21.

22. States that its attorneys lack knowledge or information suffcient to form a
belief as to the truth of

the matters alleged in paragraph 22.

23. Denies the allegations in paragraph 23.
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COUNTERCLAIM
24. This counterclaim is authorized by the Chief Counsel of

the Internal Revenue

Service as the delegate of

the Secretar of

the Treasury. It is brought at the direction of

the Chief of

the Court of

Federal Claims Section ofthe Tax Division as the delegate of
the United States pursuant to the provisions of26 U.S.C. § 7401.
this counterclaim is conferred upon the Court by 28 U.S.C.

the Attorney General of

25. Jurisdiction of

§ 1503.

26. On November 23,2005, plaintiff

was assessed additional tax, restricted

interest, and § 6662 accuracy related penalties for taxable years ending September 30,
1997 ("1997"), and September 30, 1998 ("1998"), in the following amounts:
1997
1998

Tax Restricted Interest Penalty

$19,079,286 $12,082,749
$ 5,395,492

$5,723,088.00 $1,354,387.08

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27. On November 23,2005, plaintiffs 1997 and 1998 accounts were credited with
the following amounts of tax and restricted interest:
1997 1998

$19,519,331.25

$5,932,095.32

28. After applying the credits in paragraph 4 to the assessments in paragraph 3,
the balance of

restricted interest and penalty due on plaintiffs 1997 and 1998 accounts

was as follows:
1997

1998

Interest Penalty

$11,642,703.75
$ 5,395,492.00

$1,145,379.76

29. Proper notice and demand for payment of

these assessments was made on

plaintiff on November 23,2005.
30. Plaintiff has failed to make any payments in satisfaction of

the above net

assessments of restricted interest and penalty.

31. There remains due and owing on the above assessments of restricted interest
and penalty the following sums, plus interest as allowed by law:
1997 1998

Interest Penalty Total

$11,642,703.75
$ 5.395.492.00

$1,145,379.76
$1,145,379.76

$17,038,195.75

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32. The basis for the above assessments is the Commissioner's determination that

plaintiff owed additional taxes and restricted interest for 1997 and 1998, and that plaintiff
was liable for an accuracy-related penalty under 26 U.S.C. § 6662 for 1997.

WHREFORE, defendant requests:
1. That the complaint be dismissed with costs assessed against plaintiff, and

2. That the United States recover judgment on its counterclaim against plaintiff in

the amount of$17,038,195.75 for 1997 and $1,145,379.76 for 1998, plus interest thereon
as allowed by law.
Respectfully submitted,

Attorney of

sf ELIZABETH D. SEWAR Record U.S. Department of Justice Tax Division Federal Claims Section Post Office Box 26 Ben Franklin Post Office Washington, D.C. 20044 (202) 307-6508 (202) 514-9440 (fax)
Court of

EILEEN J. O'CONNOR Assistant Attorney General DAVID GUSTAFSON Acting Chief

December 21 ,2005

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IN THE UNITED STATES COURT OF FEDERA CLAIMS
BROWNING-FERRS INDUSTRIES, INC. & )

SUBSIDIARIES )

v. )
Pursuant to Rules 7 and 12 of replies to the Counterclaim of

Plaintiff, )
) ) )
)

No. 05-738 T Judge Thomas C. Wheeler

THE UNITED STATES OF AMERICA, )

Derendant. )
the Rules of

REPLY TO COUNTERCLAIM
the United States Cour of

Federal Claims,

Plaintiff, Brownng-Ferrs Industries, Inc. & Subsidiaries (hereinafter, "BFI" or the "Plaintiff'),
the Defendant, the United States of America (hereinafter, the

"Defendant"), as follows:
24. Plaintiff lacks knowledge or information suffcient to form a belief as to the truth

of the allegations set forth in paragraph 24 of the Counterclaim.
25. Plaintiff admits the allegations in paragraph 25 of the Counterclaim

26. Plaintiff admits that, on or about November 23, 2005, it was assessed additional

tax, restricted interest, and a penalty in the amounts alleged in paragraph 26 of the Counterclaim,
but denies any liability for such assessments and denies that any and all such amounts are due

and owing. Plaintiff denies any remaining allegations in paragraph 26 of the Counterclaim.
27. Plaintiff admits the allegations in paragraph 27 of the Counterclaim.

28. Plaintiff denies the allegations in paragraph 28 of

the Counterclaim.

29. Plaintiff admits that, on or about November 23, 2005, Defendant provided notice

and demanded payment of

net assessments totaling $18,183,575.51, but denies any liability for

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such assessments and denies that any and all such amounts are due and owing. Plaintiff denies
any remaining allegations in paragraph 29 of the Counterclaim.
30. Plaintiff admits it has made no payment in satisfaction of

the net assessments, but

denies any liability for such assessments and denies that any and all such amounts are due and

owing. Plaintiff denies any remaining allegations in paragraph 30 of the Counterclaim.
31. Plaintiff denies the allegations in paragraph 3 1 of the Counterclaim.

32. Plaintiff admits that the Commissioner's stated bases for the net assessments are

its determinations as alleged in paragraph 32, but denies any liability for such assessments and

denies that any and all such amounts are due and owing. Plaintiff denies any remaining
allegations in paragraph 32 of

the Counterclaim.

AFFIRMATIVE DEFENSES AND OTHER MATTER
Without assuming any burden of proof for which it is not responsible as a matter of

law,

and without admitting any of

the allegations of

the Counterclaim other than those expressly

admitted herein, Plaintiff hereby asserts the following affirmative defenses and other matter in
response to Defendant's Counterclaim, without prejudice to plead additional affirmative defenses

as the facts developed in discovery may warant:

FIRST
There was no underpayment of

tax on which to impose an accuracy-related penalty under

26 U.S.C. section 6662. The capital

loss claimed by the Plaintiff -- arising from its 1999 sale of

Class B Common Stock in certain liability management companies to environmental and
insurance consultants -- represents the proper tax treatment for the transactions pursuant to 26
U.S.C. sections 357(c)(3) and 358(d)(2). In addition, because the Plaintiff

had a non-tax

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business purose for entering into the transactions and the transactions had economic substance,
the transactions may not be disregarded for federal income tax puroses.

SECOND
No accuracy-related penalty applies because there was reasonable cause for, and Plaintiff
acted in good faith with respect to, its tax treatment of the transactions that resulted in the alleged

underpayment of taxes. As a result, Plaintiff satisfies the reasonable cause exception to the

accuracy-related penalty under 26 U.S.C. section 6664(c). In fact, Plaintiffs tax treatment ofthe
transactions was consistent with the Internal Revenue Service's contemporaneous interpretations
of applicable law.

THIRD
No accuracy-related penalty for a gross valuation misstatement applies because any
alleged underpayment of

tax was not attributable to a valuation misstatement under 26 U.S.C.

sections 6662(a), (b)(3), (e), and (h).

FOURTH
No accuracy-related penalty for negligence or disregard of rules or regulations applies because any alleged underpayment of tax was not attributable to negligence or disregard of rules

or regulations under 26 U.S.c. sections 6662(a), (b)(l), and (c).
WHEREFORE, Plaintiff

prays that Defendant's Counterclaim be dismissed in its

entirety, that judgment be entered on behalf of Plaintiff and against Defendant, and that this

Cour grant such other and fuher relief as it deems just and proper.
Dated this 29th day of

December, 2005.
Respectfully submitted,

s/ ROBERT F. DENVIR Winston & Strawn LLP

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35 West Wacker Drive Chicago, Ilinois 60601
Phone: (312) 558-5675
Fax: (312) 558-5700
Attorney of Recordfor the Plaintif
Of counsel:

JAMES M. LYNCH
PETER W. POULOS

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i
IN THE UNITED STATES COURT OF FEDER CLAIMS
BROWNING FERRIS INDUSTRIES,

INC. ,

Plaintiff,
v.
UNITED STATES,

Docket No.: OS-738T

Defendant.
Courtroom 6, Room 507 National Courts Building 717 Madison Place NW

Washington, D. C.

Tuesday,
August 29, 2006

The parties met, pursuant to notice of the

Court, at i 0 : 03 a. m .
BEFORE: HONORALE THOMF~S C. WHEELER

Judge

APPEARCES:
For the Plaintiff:

PHILIP KATER, Esquire
HERBERT ODELL, Esquire Miller & Chevalier 300 Conshohocken Sate Road, Suite 570 West Conshohocken, Pennsylvania 19428 (610) 729-7820
Also for the Plaintiff:
(Via Telephone)

JOSEPH SCIAROTTA, Esquire Managing Corporate Counsel Allied Waste Industries, Inc. 15880 North Greenway - Hayden Loop, Suite 100 Scottsdale, Arizona 85260 (480) 627-2370
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2

APPEACES:

( Continued)

For the Defendant:

STUART JOEL BASSIN, Esquire

JENIFER SPRIGGS, Esquire

u.S. Department of Justice Tax Division 555 Fourth Street, N. W., Room 7203

Washington, D. C. 20001
(202) 353-0513

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3

i
2 3

.lRQb~~!2lNQâ
(10:03 a.m.)

THE CLERK: All rise. The United States

4 Court of Federal Claims is now in session, the

5 Honorable Thomas Wheeler presiding.
6 7 8 9

THE COURT: Good morning.

ALL: Good morning.
THE COURT: - Please be seated.

We're on the record this morning in the case

10 of Browning Ferris Industries, Inc. v. The United
11 States, Docket No. 05-738T.

12 Let's have counsel enter their appearances
13 for the record, please.
14

MR. KATER: Good morning, Your Honor. I'm

15 Philip Karter, counsel of record for Browning Ferris,
16 and with me today is my colleague, Herbert Odell, who

17 has also entered an appearance in this case.

18 I also, I don't know if he has been brought
19 into the conference yet, but we have Mr. Joseph
20 Sciarrotta, who is the managing corporate counsel of

21 Allied Waste Industries, who was going to participate 22 by telephone in this hearing.
23
THE COURT: Okay, I'm not sure if I was

24 aware of that, but we can certainly accomplish it.
25
THE CLERK: Your Honor i I need to dial him

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4

1 in.
2

THE COURT: All right, why don' t we go ahead

3 and do that. Let's take a moment and dial this

4 gentleman in.
5 6 7
8

MR. KATER: Thank you.
THE COURT: Sure.
(Pause. )
THE COURT: - So did you travel to come here

9 today?
10
MR.

KATER:

But not very

far.

11
12 13
14

THE COURT:
MR.

Not very far.
From

KATER:

Philadelphia.

THE COURT:
MR. ODELL:

Okay.
We

like Washington in the

15 summer, Your Honor.
16 17
18

(Laughter. )

MR. ODELL: Nice and cool.
THE COURT: Hopefully this is the grand

20 (Pause.)
21
THE COURT: Hello, is the gentleman on the

19 finale.
22 phone?
23

THE CLERK: One moment, Your Honor.
THE COURT: Okay. Let's go off the record.
(Whereupon, a short recess was taken.)

24

25

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5

1

THE COURT: We're back on the record now.

2 Just for the record, we have been spending a
3 few moments getting Mr. Sciarrotta from Allied Waste

4 on the line, and nøw we will resume by having the
5 Defendant's counsel enter their appearance for the

6 record.
7

MR. BASSIN: Your Honor, Stuart Bassin for

8 the United States. With me today is Jennifer Spriggs,
9 another attorney from the Tax Division, and D.S.

10 Pensley who is a law student who is with us from
11 Cornell this summer who is much better at the

12 technology than I am, and will be helping out later.
13

THE COURT: Maybe we should have solicited

14 her assistance.
16

15 (Laughter. )
THE COURT: I hope you're having a good

17 summer at the Tax Division.

1S Well, regarding the Browning Ferris case, I
19 know that we have a scheduling order in place and
20 presumably you all have been working ahead in

21 discovery. With the Federal Circuit's issuance of the 22 Coltec decision, we thought it was appropriate to get

23 in touch with the parties at this stage, and it seems 24 that you all accepted the invitation and chose to
25 appear in court today, which is fine.
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6

1 I really don't care which side wants to go
2 first to tell the Court what is occurring, but maybe

3 you have worked that out.
4

MR. KATER: Well, with Mr. Bassin's

5 permission, perhaps I will take the initiative because

6 I was the impetus for requesting the in-court hearing

7 today.
8 THE COURT: - Come on up to the podium. MR. KATER: Sure. One of the reasons why I 9
10 felt it was important to appear before the Court today 11 is because it has come to our attention that there is

12 a jurisdictional issue present in this case that we
13 were previously unaware of.

14 I've discussed this with Mr. Bassin and co15 counsel last week in anticipation of this conference, 16 and I had hoped to -- without getting into all the
17
technical aspects of this issue

brief the Court on

18 what the issue is, why we think it is material as to

19 the case as a whole, where it leads us to start from
20 the end and then work my way back is that we have come

21 to the realization that the wrong plaintiff, a
22 plaintiff that is no longer in legal existence filed

23 both the federal tax refund claim, which is the 24 prerequisite for jurisdiction for a federal tax refund
25 suit, and the complaint in this matter.

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7

1

As Your Honor may know, myself and Mr. Odell

2 were brought into this case only recently. I entered
3 an appearance on June 30th and I entered an appearance

4 for Mr. Odell just. last week. We were not the

5 attorneys who brought the complaint. We were not
6 involved in this matter much prior to that time.

7 In the course of our own becoming familiar
8 with the case, we made the discovery that the putative

9 plaintiff in this case, BFI Industries, Browning

10 Ferris Industries, Inc. was terminated out of legal
11 existence on December of 2004, December 31st, I

12 believe, of 2004.
13

THE COURT: It's the same law firm all along

14 though, isn' t that right?
15

MR. KATER: No, it's not. The original law

16 firm on this case and the original counsel of record
17 was Robert Denver of Winston & Strawn.
18 19

THE COURT: Yes, I'm sorry. I did see that.

MR. KATER: All the people in this room are

20 probably as familiar with the contingent liability
21 transactions as anyone. Mr. Odell and I were counsel
22 for Black & Decker.' Mr. Bassin, of course, counsel in

23 the Coltec matter. So we're all quite well versed in
24 the issue, and I i m sure Your Honor wants to hear the

25 parties speak as to the relevancy of the Federal
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8

1 Court's determination as to that case, and we

2 certainly are prepared to do so.

3 But I think it's important to make the Court
4 aware that we believe that the jurisdictional defect

5 requires a dismissal of this case and a refiling after 6 we satisfy the jurisdictional prerequisites.

7 Subject matter jurisdiction is a matter that
8 can be raised at anytime, and when I had the
9 conversation with Mr. Bassin and his co-counsel about 10 this issue last week, he was understandably skeptical

11 about the timing of the decision and the fact that in

12 light of the Federal Circuit's decision in Coltec this
13 smacks of the appearance and forum shopping.

14 My response to that was then, and I would
15 repeat now to Your Honor, is that, first of all, forum 16 shopping is indigenous to the federal tax litigation
i 7 process. There are three different fora that the

18 taxpayers can choose to go into.

19 The fact of the matter is that the need to
20 correct the jurisdictional defect is as important as
21 if the taxpayer had won the Coltec case in the Federal

22 Circuit or had lost the case because subject matter
23 jurisdiction, whether considered by this Court or the

24 Federal Circuit on appeal, can cause a dismissal of

25 this case at anytime.
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9

1 So from our standpoint, we could litigate
2 this case in this Court and prevail, and then have the

3 case dismissed in the Court of Appeals. So it's as

4 important for our perspective as it is for the
5 government's to make sure to get the jurisdiction
6 right, and it's either right or it's wrong, and our

7 research into the issue, and it does involve a
8 byzantine navigation- through some of the federal tax

9 statutes and regulations, leads us to the conclusion

10 that the termination out of legal existence of 11 Browning Ferris Industries, Inc. in December of 2004, 12 before the refund claims were filed and before the

13 action was brought, was a defect that requires the
14 dismissal without prejudice of the case.

15 We would be required to refile refund claims
16 in the name of the appropriate successor taxpayer,

17 which we have done, and then refile either after the

18 rejection of those claims, or the expectation of six
19 months, which is the jurisdictional prerequisite for

20 bringing suit.
21
THE COURT: Well, I'm sure our student from

22 Corneii can confirm for us that jurisdictional issues
23 always come first, so as much as I would love to hear

24 about the merits and all of that, I think you've
25 raised a good question that we need to address.
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1 Now, what the outcome of that is, whether
2 it's a dismissal without prejudice or whether we can 3 go forward with some kind of substitute of parties

4 arrangement, I don! t know. I'm anious to hear about

5 that.
6

MR. KATER: Well, let me just state at the

7 outset that the notion that a dismissal of a case for
8 jurisdictional bases- should be weighed against the
9 notion of prej udice to one party or another is not

10 supported by the law. Subject matter jurisdiction

11 exists or it doesn't. 12 In any event, a dismissal without prej udice
13 simply because one party may gain a tactical advantage
14 of, for example, refiling in another court where the

15 authority may be different than it is in this Court,

16 for example, is not a basis for denial of a dismissal
17 without prejudice, if there is a jurisdictional defect

18 as there is in this case.

19 I am more than happy to get into the
20 technical nuances of the issue. I'm also happy to let

21 Mr. Bassin respond at this point and then re-address
22 the Court. In fairness to the government, I have not,
23 other than to outline the issue and explain why we

24 believe there is a defect, I have certainly not 25 undertaken to provide them with all of the legal
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11

1 arguments that we would proffer to the Court in a

2 motion for the Court's consideration.

3 At the end of the day, we want to make sure
4 that we get it right because if we are wrong, as I
5 said, whether we win the case in the trial level or
6 lose the case, the case could be dismissed at some

7 later point.
8 One of the- reasons why we felt compelled to
9 refile refund claims is because our client's position

10 would be irrevocably prejudiced if we did not do that
11 if a jurisdictional defect were found to exist and the

12 statute of limitations for filing new refund claims

13 had expired.

14 This taxpayer or the client filed refund
15 claims, defective ones as it turns out, in May of
16 2005. Under the Internal Revenue Code, the taxpayer

17 has two years to seek the refund of amounts that it
18 has paid, and if we didn't file refund claims before 19 the expiration of that time, and then the statute ran, 20 the government could very well, as it has in many

21 other cases, come into court and said there is a 22 jurisdictional defect here. This matter has to be
23 dismissed, and by the way you're no longer timely

24 under the statute of limitations to refile.

25 We refiled the claims last week because one
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12

1 of the statutes was about to expire. So that's where
2 we stand today, and our intention would be to provide
3 Your Honor with Your Honor's approval of a legal brief

4 explaining the reasoning why we think there is a
5 jurisdictional defect that requires dismissal under
6 Rule 41, compliance with the statutory prerequisites
7 for refiling, and then filing a new action when those

8 prerequisites are satisfied.
9 So at this point why don't I take a break

10 and let Mr. Bassin respond if he has anything to say.
11
12

THE COURT: That's fine. Mr. Bassin?

MR. BASSIN: Your Honor, we have two

13 principal points we want to make today. One, we had

14 planned to address, the fact that the Coltec decision
15 is as a practical matter almost dispositive of this

16 case. Plaintiffs badly wants not to be in this forum
17 to litigate this issue, and we think that that's tied
18 to this new- found discovery of a jurisdictional issue.

19

THE COURT: Well, of course, Col tec may not

20 be over. We don't know where the las t word is going

21 to come from.
22

MR. BASSIN: Right, that is true. And in

23 fact for your reference, there is a rehearing 24 petition for rehearing filed, I think, Friday
25 afternoon, and there is talk that they would go to the
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13

1 Supreme Court.

2 That said, what Mr. Karter, I think, has

3 omitted is what Plaintiffs are really trying to
4 achieve here is to .

remove this case from jurisdiction

5 in the Federal Circuit and with the new claims to file

6 in another circuit where Coltec is not the law.
7

We think that is forum shopping. We think

8 that is impermissible forum shopping.
9

THE COURT: Well, I think the issue though

10 regardless of the motives that Plaintiff may have is 11 whether jurisdiction probably exists here.
12

MR. BASSIN: Well, and that is something

13 that we're very interested in hearing about. As Mr. 14 Karter pointed out, he and Mr. Odell have been in the 15 case for a few weeks now. For a very long time prior
16 to that, Browning Ferris asserted in this Court and

17 elsewhere that there was proper jurisdiction.

18 If you look at paragraphs 3 and 4 of the
19 20

complaint

may I provide a copy?

THE COURT: I have a copy of the complaint

21 here.
22 23
24

MR. BASSIN: Okay.
THE COURT: Paragraphs 3 and 4?

MR. BASSIN: Right. Paragraph 3 asserts
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14

1 under Delaware law, and paragraph 4, in the second
2 sentence said, "BFI is duly authorized to act in its

3 own name with respect to all matters relating to the

4 affiliated group of which it was a common parent for

5 all periods relevant to this action."

6 Furthermore, if you look at the claim for
7 refund also attached to the complaint, and I can give

8 you a copy. May I? 9

THE COURT: Yes. Thank you.
MR. BASSIN: That claim for refund 1S filed

10

11 in the name of Browning Ferris. It's signed by a Dale

12 L. Parker, who is the vice president of taxes of
13 Allied Waste, and we believe - - I think the documents
14 show he was involved in all of these transactions.
15 Furthermore, we checked Allied Waste's

16 annual report for the 2005 year, and they are
17 asserting that they have brought this lawsuit, and
is that there is jurisdiction here.

19 What that means is that what Plaintiffs are
20 now saying is that the sworn statement of their vice

21 president of taxes in filing the refund claim is
22 incorrect; that their in-house lawyers and the team of

23 lawyers from Winston & Strawn who filed this 24 complaint, and who signed the complaint satisfying 25 Rule 11, that they were wrong; and that all of these
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1 people for all of these years had it wrong.

2 What's interesting to us and we have not
3 been provided with any of the details is that this

4 defect is being discovered at a time when it is very

5 convenient for the Plaintiff to have a failure of 6 subject matter jurisdiction.
7

THE COURT: Well, have you been able to

8 confirm whether BFI is still a legal entity, and if
9 not, when their legal status ended?
10

MR. BASSIN: No, we have not. We have not

11 been provided with any of that information.
12
13

THE COURT: Is that --

MR. BASSIN: We also don' t know what the

14 consequence of whatever it is that happened in
15 Delaware is under state corporate law. For example,
16 if the Environmental Protection Agency had a lawsuit
17 pending against Browning Ferris on December 31, 2004,

18 Browning Ferris/Allied Waste can' t now say lawsuit is 19 no good, we don' t exist.

20 The provision and the presumption under the
21 law is that there is a substitution of the parties, or 22 a substitution of the correct successor in interest, 23 and that's encapsulated in Rule 25 of the rules here,

24 and our research in the rather esoteric area of 25 consolidated returns suggests that that's the way the
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16

i tax law works.

2 We've asked and Mr. Karter has not been able
3 to provide us with a citation to a single case where a
4 dismissal for want. of subject matter jurisdiction has

5 arise under the circumstances.
6

It would be interesting

you know, let me

7 go on. You know, we're sitting here and we feel we've

8 been prejudiced on several grounds. Number one, you

9 know, they selected the forum the first time. Now

10 they're unhappy with it. They want to change. That
11 is beyond the realm of permissible forum shopping.

12 And as you will recall about six or eight
13 months ago we all briefed a motion for stay of 14 proceedings while Coltec was decided, saying, you 15 know, Col tec is going to be really important here, and
16 when it's allover we may have different views of this

17 case. Plaintiffs opposed, and in the interim we've

18 invested quite a bit of resources in this case. The
19 latest numbers are over 600 hours of attorney time,

20 plus out of pockets, plus all the work we/ve done with

21 expert witnesses. 22 We feel we've conducted discovery, there is
23 outstanding discovery requests. We feel that we would

24 be prej udiced by this.

25 So one thing I wanted to make clear is that
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1 there are two ways that this case can go away. One is
2 a dismissal for one of subject matter jurisdiction as

3 a motion under Rule 12. A second would be a
4 stipulation for dismissal under Rule 41. The
5 government will not stipulate to that dismissal.
6

THE COURT: Well, this is rather an unusual

7 situation. You don' t normally have a plaintiff moving

8 to dismiss for lack of jurisdiction.
9

MR. BASSIN: Right.
THE COURT: With the government opposing.

10

11 That's a new one on me. But i still think that you're

12 raising issues that probably need to be fleshed out so
13 that we have our facts straight.
14 15

MR. BASSIN: Right.
THE COURT: And I think we need to know

16 whether the case ought to be dismissed or whether we
17 could do a substitution of parties under Rule 25 and

1S cure the defect that way. But I think it ought to be

19 briefed in our usual motion process.
20 21
MR. BASSIN: I agree with you, Your Honor.

Let me add a third possibility. There are

22 new refund claims being filed, and to the extent that 23 there is uncertainty as to which entity is the proper
24 plaintiff, whether it is Browning Ferris Industries as
25 this is filed, and the other refund claims, I suspect,

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i are denominated Allied Waste as successor in interest

2 to Browning Ferris Industries.

3 What can be done to be sure that we have
4 jurisdiction is that when their jurisdictional time
5 has expired Plaintiffs can file the new Allied Waste

6 complaint here. We can consolidate the cases, and
7 whichever way it goes, we don' t have a jurisdictional

8 problem because one of them is right.

9 But that isn' t what Plaintiffs want to do
10 here. What Plaintiffs want to do, as I understand it,
11 is to dismiss this case and file the new Allied Waste

12 as successor in interest case in a different circuit
13 to forum shop, to seek different law, and we think

14 that's impermissible. We have grave reservations as

15 to the merit of their claim of lack of subject matter
16 jurisdiction, and even graver reservations regarding

17 their position that they ~nly option is to dismiss.

18 So what we would say is rather than address
19 this complicated jurisdictional question, let Browning

20 Ferris or Allied Waste or whoever bring the other

21 lawsuit here and we can be sure that we have
22 jurisdiction, and we want to hear why Plaintiffs don' t

23 want to do that.
24 25

MR. KATER: May I, Your Honor?
THE COURT: Well, just to comment first and
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i then I'll be glad to hear from you, Mr. Karter.

2 I've seen this done a lot of different ways
3 in my years of practice. You know, sometimes when
4 there is a corporate transaction of some kind that
5 occurs while a lawsuit is pending you just substitute 6 in the new for the old, and the case goes along.
7

Now, there may be some peculiarity of the

8 tax code or regulatiøns which would cause the
9 jurisdictional issue, but I' m appreciative the preview

10 of the issue that's to come here, but I really think
11 we need to nail down some of the facts.

12 My preliminary thoughts are that to the
13 extent that judicial economies and efficiencies weigh
14 into this decision, I think you make some good points.

15 but on the other hand, jurisdiction often is a yes or 16 no answer, and if there is not jurisdiction,
17 regardless of what the motivations may be, I'm not 18 sure that there is anything the Court can do about it.

19 But I think we need to hear more about this
20 through the motions process.
21
MR. BASSIN: Okay. I'll let Mr. Karter go

22 ahead. Thank you.
23
THE COURT: Please, Mr. Karter.

24 25

MR. KATER: Thank you, Your Honor.
A couple of points in response. As I said
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1 at the outset, I understood and understand today Mr.

2 Bassin's skepticism. I make no bones about the fact

3 that we think that the decision of the Federal circuit
4 is flawed and we taink that the law that controls this

5 Court is wrong. Be happy to take some time today to
6 explain that, although we recognize that is is
7 controlling precedent on this Court, at least as that

8 case stands today.
9

However, with regard to the facts as to

10 whether jurisdiction exists, as to whether this entity
11 exists or not, notwithstanding the mistakes that may

12 have been made in the past, I stand before you today

13 with full knowledge of these facts, that this entity 14 was terminated from its existence, and that there are
15 new éntities in place that are the proper claimants as

16 to the taxes at issue.

17 At the end of the day the facts are the
18 facts. Either the company exists or it doesn' t. If
19 it doesn' t exist, then the jurisdictional question

20 arises.
21 The second point I'd like to make has to do
22 with Mr. Bassin's comments regarding prejudice to the 23 government and the fact that time has been invested in

24 this case.
25 It should be quite obvious that the company
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1 has no intention of walking away from this claim, and

2 it's true that considerations of the governing law
3 might dictate where this case would be refiled.

4 That's really a question independent of the

5 jurisdiction question.

6 If jurisdiction exists, then we are in this
7 Court. That's the decision that was made, and we

8 litigate here. If jurisdiction does not exist, then
9 that's the taxpayer's right to determine the forum in

10 which it litigates, and that mayor may not be here.

11 That's true. I wouldn't argue that point.

12 But as to the time invested, first of all,
13 it's not relevant to the issue of jurisdiction because

14 that's a yes or no question as Your Honor has pointed

15 out. But that time that the government has spent is

16 going to be utilized to the same degree, the work that
17 they've done, the experts that they've consulted, in

18 the case that's refiled wherever it's refiled. The 19 evidence is the same, the information is just as
20 relevant. I'm sure the government's analysis is just

21 as apropos, so there is no prejudice.

22 But in any event, as I mentioned, as I will
23 be happy to submit in briefs to the Court that the

24 gaining of a tactical advantage, be it by forum
25 shopping or selecting a forum where the law perhaps is
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1 more favorable, is not a basis to deny a request to

2 dismiss with prejudice, particularly if there is

3 jurisdiction lacks. It follows that if there is lack
4

of jurisdiction a ease should be dismissed

I'm

5 sorry, I think I said "with prejudice".
6 7

THE COURT: You meant without.

MR. KATER: Without prejudice.

8 THE COURT:- Well, if Company A acquires
9 Company B while Be has a pending lawsuit, can' t you

10 just substitute in the correct party and proceed

11 along?
12

MR. KATER: Were it that simple. But under

13 the tax law nothing is. The fact of the matter is
14 that under the tax law when a company's existence is

15 terminated there is a protocol that's supposed to be
16 followed where a designee is named to replace it.
17 It's not a question of liability.. Clearly somebody is

18 liable. Somebody assumes the responsibilities, the

19 liabilities.
20
BFI, Inc. is no more. There is a designee,

21 the appropriate party claimant in this case, and the
22 refund claims were filed in the name of that designee. 23 The IRS actually has its own procedure which is
24 outlined in a revenue procedure as to how the

25 designation is made where all of the subsidiaries of
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1 the former entity effectively elect a new replacement

2 party.
3 But the consolidated return regs also make
4 clear that a termination does occur, and if a
5 termination does occur, then that entity 1S no longer

6 a legal entity. You can't file a case in the name of

7 an entity that is not in legal existence.
8 So those are the issues and those are the
9 issues we're happy to brief.

10 Now, I agree with Mr. Bassin that I was
11 unable to provide him - - this is, as your Court knows, 12 a unique circumstance where a party is effectively 13 seeking to dismiss its own case without prejudice

14 albeit, but I want to stress again that this is not a
15 question of blatant forum shopping.

16 We need to be protected just as the
17 government does to cure a jurisdictional defect. I

18 could cite verse after verse of instances where the
19 IRS has come in and asserted that the wrong taxpayer
20 filed the claim, and sought to dismiss because of lack
21 of sovereign immunity, lack of subj ect matter

22 jurisdiction because the defect was in the filing of
23 the claim and therefore the suit was defective.
24
Now, those circumstances are not like this,

25 albeit I think this is an issue of first impression
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1 under these specific circumstances, but the analysis

2 is really the same. We are protecting our client's 3 interest. In fact, with this discovery it would be
4 malpractice for us. to do otherwise because, as I said,

5 the client could litigate the case, and the government

6 could just as easily raise the issue in the Court of
7 Appeals if we were to win. So we have to take these
8 steps and the Court should, as I think the Court has

9 indicated its willingness to, consider this question

10 first.
11 There is going to be nothing lost in terms
12 of the work product that the government has undertaken

13 in this case. It will be utilized. I can assure
14 everyone of that. We have no intention of walking

15 away from this case, but we do need to get the 16 jurisdictional issue right.
17
Now, I do question whether it makes sense

18 for proceedings to continue in this case while this
19 issue is pending. We are perfectly prepared in short 20 order to provide the Court with a legal brief laying
21 out the issues and providing th