Free Response to Motion - District Court of Federal Claims - federal

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 1 of 34

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

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

Plaintiff
v.

THE UNITED STATES,

Defendant

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 J. O'CONNOR Assistant Attorney General
DAVID GUSTAFSON STUART J. BASSIN JENNIFER D. SPRIGGS
JACOB E. CHRISTENSEN Attorneys

U.S. Department of Justice Tax Division Federal Claims Section Cour of Post Office Box 26 Ben Franklin Post Offce Washington. D.C. 20044 (202) 307-6418
(202) 307-2504 (fax)

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 2 of 34

TABLE OF CONTENTS
Page(s):

INTRODUCTION .......................................................................................................................... 1

FACTS ........................................................................................................................................... 4

A. Plaintiffs Historic Dealings With the Service .......................................................4
B. Corporate Status of BFI Inc. ........ ............... ....................... .................................... 8

C. The New Refund Claims ........................................................... ........................... 10
D. Plaintiffs Change of

Litigating Position ............................................................. 11

ARGUMENT ............................................................................................................................... 12
i. RCFC 41(a) Does Not Authorize Voluntary Dismissal Because

Dismissal Would Prejudice the United States and Require Dismissal of its Counterclaim ........... ...... .......................... ......................... ...... .... 13
II. The Court of

Federal Claims Has Subject Matter Jurisdiction Over This Suit ..................................................................................... .......................... 16

A. BFI Inc. Was a Legal Entity at the Time it Filed the
First BFI Claims ........ ......................... ................................. ..................... 17
B. BFI Inc. Had Authority to File the First BPI Claims
on Behalf of

the BPI Consolidated Group ............................................... 21

C. BFI Has Not Established That Filng of

Refud

Claims by the Incorrect BFI Subsidiar on Behalf of the BFI Consolidated Group Would Defeat the Court's Subject Matter Jurisdiction Over the Claims of the BFI Consolidated Group ......................................... ................. ...... 23
III. RCFC 17 and 25 Establish That Substitution of

the Appropriate Parties in Interest is the Proper Procedure for Addressing Changes in the Status of an Entity ..... ........ ........................................ ................................. 26

CONCLUSION ............................................................................................................................ 27

-11-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 3 of 34

APPENDIX OF STATUES AND REGULATIONS:
Page(s):

United States Code:
26 U. S. C. § 7422 ............................................................................................................................ 1 28 U.S. C. § 1 503 ............................................................................................................................ 3

Treasury Regulations:
Treas. Reg. § 1.6012-2 .................................................................................................................. 4 Treas. Reg. § 301.6402-2 ............... ..................... ........................................ ................................ 10 Treas. Reg. § 301.7701 -2 ... ............................................... ........ .................................................. 12

Treas. Reg. § 301.7701 -3 ......................................................... ................................................... 20

Miscellaneous:
Delaware Corporate Statutes ....................................................................................................... 30

FACTUAL APPENDIX:

Declaration of Martha Goodrich ................................................................................................... 1

Declaration of Stuart Bassin ......................................................................................................... 3
Complaint........................................................................................................................... 8

First Amended Answer and Counterclaim ....................................................................... 17

Reply to Counterclaim ..................................................................................................... 23
Transcript of hearing, dated August 29, 2006 ..... .... ................. ........................................ 27

Letter, dated August 31, 2006, from Internal Revenue Service to BFI Waste Systems of America .......................... ....... .............. ................... ......... 64

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

Amended U.S. Corporation Income Tax Retur filed 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

refud claims ...............84

-11-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 4 of 34

Page(s):

Amended U.S. Corporation Income Tax Retur fied by Browning Ferris Industries, LLC on August 22,2006, for period ending Sept. 30, 1997 .............. 87
Amended U.S. Corporation Income Tax Return fied 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 filed by BFI Waste Systems on August 22,2006, for period ending Sept. 30, 1997 ...................................... 104
Amended U.S. Corporation Income Tax Return filed by BPI Waste Systems on August 22,2006, for period ending Sept. 30, 1998 ...................................... 109

Amended U.S. Corporation Income Tax Retur filed by BPI Waste Systems on August 22, 2006, for period ending July 31, 1999 ........................................ 115
Excerpts, Form 10-K fiing by Allied Waste Industries, Inc. for 2005 fiscal year ........ 121
Federal Income Tax Return (Form 1120) for Browning Ferris Industries, Inc.

for period ending Sept. 30, 1998 ................................................. .......... ............. 124
Federal Income Tax Return (Form 1120) for Browning Ferris Industries, Inc.

and Subsidiaries for period ending Sept. 30, 1999 ............................................ 125
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 Return (Form 1120) for Allied 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, 2000......................................................... 159

Certified documents fied with the Arizona Corporation Commission ......................... 163
Transcript, Deposition of Elaine Kuether ................... ................ ......... .................... ...... 180
Transcript, Deposition of Dale Parker ....... ........................ ............ ...................... .......... 203
-lV-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 5 of 34

TABLE OF AUTHORITIES
Page(s):

FEDERAL CASES
Alumni Association of

North Carolina v. United States, the University of 223 Ct. Cl. 765 (1 980) ............................................................................................................... 16

American Radiator & Standard Sanitary Corp. v. United States, 318 F .2d 915 (Ct. Cl. 1963) ............................................. ......................................... ................ 24 Arthur W. Mires. Trustee v. United States, 2006 WL 3072758 (loth Cir. 2006) ......................... 18
Bamdad Mechanic Co. v. United Tech. Corp., 109 F.R.D. 128 (D. DeL. 1985) .......................... 16

Coltec Industries. Inc. v. United States, 454 F.3d 1340 (Fed. Cir. 2006) ......................................2
Cone v. West Virginia Pulp & Paper Co., 330 U.S. 212 (1947) .................................................. 15

Daffv. United States, 78 F.3d 1566 (Fed. Cir. 1996) .................................................................. 14
Deuterium Corp. v. United States, 21 Cl. Ct. 132 (1990) ............................................................ 15

Hersloffv. United States, 310 F.2d 947 (Ct. Cl. 1962), cert. denied, 373 U.S. 923 (1963) .................. ............................................ ...... ..................... ..... 20
Levitsky v. United States, 27 Fed. Cl. 235 (1992) .......... .................................... ......................... 25

Mulholland v. United States, 175 Ct. Cl. 832 (1966) .......................... ........................ ................ 14

Ottawa Silica Co. v. United States, 699 F.2d 1124, Ct. Cl. 219, 454 F.2d 1379 (Ct. Cl. 1972) ..................................................................................................... 25
Palmer v. United States, 38 Fed. Cl. 316 (1997) ............... ................................. ..... .................... 14

Placid Oil Co. v. Ashland OiL. Inc., 792 F.2d 1127 (Em. App. 1986) ........................................ 16
Schweiger Construction Co. v. United States, 49 Fed. Cl. 188 (2001) ........................................ 16

Tucker v. Alexander, 275 U.S. 228 (1927) .................................................................................. 24
Tyco Laboratories. Inc. v. Koppers Co.. Inc., 627 F.2d 54 (7th Cir. 1980) ................................. 15

-v-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 6 of 34

Page(s):

Union Pacific R. Co. v. United States, 182 Ct. Cl. 103,389 F.2d 437 (Ct. Cl. 1968), cert denied, 395 U.S. 944 (1969) ............................................................................................... 25
United States v. Dalm, 494 u.s. 596 (1990) ....... ........................... .... ......................................... 22
United States v. Memphis Cotton Oil Co., 288 U.S. 62 (1933) ..................................................24

Weathersby v. General Motors Corp., 2006 WL 2865058 (N.D. Miss. 2006) ............................ 16

FEDERAL STATUTES & REGULATIONS

26 C.F.R. § 1.6012-2 (2006) ........................................................................................................20
26 U. S. C. § 1212 ............................................................................................................................ 6
26 U. S. C. § 6532 ............................................................................................................................ 7

26 U.S. C. § 7422 .......................................................................................................................... 23

28 U .S.C. § 1503 .......................................................................................................................... 14

Treas. Reg. § 1. 1 502-77(a) ............................................................................................................. 7
Treas. Reg. § 301.770 1-2( c )(2)(iii)(A) ........ ....... ......................................... .......................... ...... 22

Treas. Reg. § 301.770 1-3(g)(1 )(iii) .................... .................. ...... ............................. ..................... 22
Treas. Reg. § 30 1.6402-2(b)( 1) .. .................... ............... ............................. ...... ............................ 24

Treas. Reg. § 301-7701 .............................................................. ............................................ 20, 21

MISCELLANEOUS

9 Wright & Miler, Federal Practice and Procedure: Civil § 2364 (1995) ................................ 15
Delaware Corporate Statutes .............................................................................................. 8, 18-19

-Vl-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 7 of 34

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

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

Plaintiff
v.

THE UNITED STATES,

Defendant

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)

This is a suit in which plaintiff seeks a refud of more than $28 milion in corporate

income tax, and the United States has counterclaimed for more than $18 milion in penalties.
Plaintiff

has moved to dismiss its own complaint and the United States' counterclaim. The

United States now opposes that motion.
INTRODUCTION

Plaintiff filed this suit more than one year ago to dispute audit adjustments made by the

Internal Revenue Service (the "Service") arising out of plaintiff s execution of a widely-

marketed tax shelter transaction, commonly called the "contingent liabilty tax shelter
transaction," designed by the former Arthur Andersen accounting firm. Taxpayers like the

- 1-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 8 of 34

plaintiff executed the contingent liability tax shelter transaction in hopes of generating artificial
capital losses for tax purposes (without corresponding economic losses). They then sought to

apply those losses against income and gains they had eared from their other operations, thereby

reducing their federal income tax liability. Recently, the Cour of Appeals for the Federal
Circuit rejected a suit brought by another similarly-situated Andersen client that executed a very

similar contingent liability transaction and claimed that it had successfully manufactured similar

losses. Coltec Industries, Inc v United States, 454 F.3d 1340 (Fed. Cir. 2006). That ruling
largely disposes of the substantive arguments plaintiff can advance in support of its claims for

the disputed capital losses and other tax benefits arising from its contingent liability tax shelter
transaction-at least in the Federal Circuit.
Following issuance of the Federal Circuit's Coltec ruling, plaintiff

first raised the highly

unusual contention that this Court lacks subject matter jurisdiction over the suit plaintiff itself

had brought. According to plaintiff, the Court lacks jurisdiction here because the refud claim
filed as a prerequisite to this suit is a legal nullity which did not satisfy the jurisdictional claim

for refund requirement because Browning-Ferris Industries, InC.-the entity which fied the
refund claim-had allegedly liquidated at the end of2004. In late August 2006, two other

Browning Ferris entities fied substantially similar refund claims addressing the tax treatment of
the same contingent liability tax shelter transaction and seeking the same tax benefits.

Apparently, plaintiff now wants to dismiss this suit and to litigate its new claims in another

forum-i.e., a forum not bound by the Coltec decision.

-2-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 9 of 34

To pursue that forum -shopping strategy, plaintiff has now taken the highly unusual step

of seeking dismissal of its own lawsuit under RCFC 41 (a)(2) and dismissal of the counterclaim
asserted by the United States under RCFC 12(b)(1). (Interestingly, plaintiff

has not moved for

dismissal of the complaint under RCFC 12(b)(1) for lack of subject matter jurisdiction).

Plaintiffs brief contends (at 3) that cours "generally allow voluntary dismissal (under RCFC
41

(a)(2))-without regard to the plaintiffs motives-unless the defendant wil suffer some plain

legal prejudice other than the mere prospect of a second lawsuit." In addition, plaintiff argues
(at 3) that it is entitled to dismissal "as a matter of

right" upon a showing that the Court lacks

subject matter jurisdiction over this suit and the counterclaim asserted by the United States.

Plaintiff s brief focuses upon its contention that the entity which fied the refud claim
underlying this suit lost the legal capacity to file a claim on behalf of the consolidated group

when it was "converted" into a limited liability corporation under Delaware law. According to
plaintiff, a valid refund claim could be filed on behalf of the consolidated group only by another

BFI subsidiary and, as a result, the refund claim underlying this suit is a legal nullty.

As discussed below, plaintiffs motion fails for several reasons. First, RCFC 41(a) does
not authorize voluntary dismissal of this suit absent an order of

the Court. Such an order is

inappropriate here because plaintiffs forum-shopping effort wil unfairly prejudice the United
States and deprive the Court of jurisdiction over the United States' $ 1 8.2 milion counterclaim.

Plaintiff likewise has not demonstrated that the Cour lacks subject matter jurisdiction over this
suit under any of the theories it has advanced. In fact, as a matter of both Delaware corporate
law and federal income tax law, Browning-Ferris Industries, Inc., existed as a corporate entity at

- 3-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 10 of 34

the time it fied the original refund claim and continues to exist. Furher, the conversion into a
limited liability company under state law did not, as plaintiff contends, deprive it of the power to

file the refund claim on behalf of the BPI Consolidated Group. Any necessary changes in the
"real party in interest" amongst plaintiff s many subsidiaries may be easily addressed through
the routine procedures for substitution of

parties under RCFC 17 and 25(c).

FACTS

A. Plaintiff s Historic Dealings with the Service.
During the years in suit, 1997 and 1998,1 Browning- Ferris Industries, Inc. ("BPI Inc.")2
was the parent company of a large corporate group consisting of more than 100 subsidiar

i BFI Inc. filed federal income tax returs 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 31, 1999-and a final federal income tax return was fied (by BFI Inc.) for the period from October 1, 1998 to July 31, 1999.
Thereafter, neither BFI Inc. nor the BFI Consolidated Group filed federal income tax returs separate from Alled. (Goodrich decl., ii 6; Fact App. at 2.)
2

similar names. In the interest of clarity, this brief

Confusion can arise because several of the entities implicated by the instant motion have uses the following conventions:
Entity

Short Form

BFI Consolidated Group

Affiliated group of related companies which fied the consolidated federal income tax retur for the years in suit
Browning-Ferris Industries, Inc., a Delaware corporation
Browning-Ferris Industries, LLC., a Delaware limited liability corporation

BFI Inc.

BFI LLC

Plaintiff

Generic reference to the group of entities seeking to obtain tax benefits from the contingent liability tax shelter transaction

-4-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 11 of 34

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

"Browning-Ferris Industries, Inc. & Subsidiaries" and the employer

identification number of74-l673682 (the "BFI Consolidated Group"). All of

the members of

the consolidated group of subsidiaries previously authorized BFI Inc. to act on their behalf with
respect to all federal income tax matters. That authorization was not modified or revoked for the

years in suit until August 2006. On August 24, 2006, plaintiff filed a request with the Service to
designate BFI Waste Systems of

North America, Inc. as the substitute agent for the BFI

Consolidated Group, and the Service approved that request on August 30, 2006. (Proposed

Findings 1-3.)
During July 1999, BFI Inc. and the other members of

the BFI Consolidated Group were

acquired by a competitor, Allied Waste Industries, Inc. (Alled), which itself

headed its own

large corporate group fiing a consolidated return. On the eve of the formal acquisition, BFI Inc.

and several of its subsidiaries executed the contingent liability tax shelter transaction at the core
ofthe instant dispute. Following the acquisition, BFI Inc. fied 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. For the post-acquisition

years, Alled, Alled's subsidiaries, and the former members of the BFI Consolidated Group fied
a single consolidated retur in the name of "Allied Waste Industries, Inc. and Subsidiaries."

Those Allied returns sought to apply more than $700 milion in capital losses purortedly
manufactured by the contingent liability tax shelter transaction to offset capital gains earned by the Allied group from the sale of assets previously held by members of the BFI Consolidated

- 5-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 12 of 34

Group, thereby allegedly reducing the Alled group's tax liability for those years by several

hundred millon dollars.3 (Proposed Findings 4-7.)
Following the acquisition, BFI Inc. continued to act as the agent for the BPI Consolidated

Group with respect to matters related to its pre-acquisition tax liabilities. During 2000, BFI Inc.
submitted documents to the Service seeking adjustments of

the BFI Consolidated Group's

income and tax liability for pre-acquisition years arising out of the contingent liability tax shelter
transaction at issue in this case. During 2005, BFI Inc. resolved a long-standing controversy

with the Service involving international taxation ofthe BFI Consolidated Group for preacquisition years. (Proposed Finding 8.)
The Service conducted an audit of

the BFI Consolidated Group's tax returns for its final

years of independent operation-including the 1997 and 1998 tax years involved in this litigation.
At the conclusion of that audit, the Service disallowed the tax benefits from the contingent

liability transaction claimed by plaintiff. Allied paid these deficiencies on behalf of BPI Inc. for 1997 and 1998 in the amounts of$19,079,286 and $3,519,979, respectively, in April 2005.
(Proposed Findings 9-10.)

3

Under federal income tax law, corporations can generally apply capital losses, like those allegedly generated by the contingent liability transaction, against gains generated in the three preceding years and the five succeeding five years under Section 1212(a). Thus, although the contingent liability transaction took place during the BFI Consolidated Group's 1999 tax year, the purorted tax benefits attributable to the transaction appear on returns for other years. The BFI Consolidated Group has availed itself of approximately $100 milion of the claimed capital losses related to the contingent liability transaction in its 1997 and 1998 tax years, and Alled (in its capacity as the parent of the BFI Consolidated Group) has sought to apply approximately $720 milion of the remaining capital losses against its taxable income earned in its 1999 through
2002 tax years. (Goodrich decL., ii 9; Fact App. at 2.)

-6-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 13 of 34

On or about May 6,2005, plaintiff

filed formal claims in the name of

"Browning-Ferris

Industries, Inc. & Subsidiaries" (using the employer identification number of74-1673682),

seeking a refund of$18.5 milion for 1997 and $9.7 milion for 1998 (the "First BFI Claims").
These refund claims were signed, under penalty of

perjury, by Dale Parker-Allied's vice

president for taxes-and were cited in the original complaint in this case. In those refud claims,

plaintiff contended that the BFI Consolidated Group was entitled to a tax refund because the
Service's disallowance of

the claimed $901.6 milion capital loss from the contingent liability

tax shelter transaction was improper. Plaintiff contemporaneously requested the Service to
immediately disallow the First BPI Claims,4and the Service denied the First BFI Claims on May

10,2005, by a letter issued to "Browning-Ferris Industries, Inc. and Subsidiaries." (Proposed
Findings 11-12.)
On July 8, 2005, plaintiff

fied the instant suit challenging the Service's disallowance of

the First BFI Claims. The complaint asserted that3. BFI (Browning-Ferris Industries, Inc. & Subsidiaries) is a corporation
organized under the laws of the State of

Delaware. BFI's employer identification

number is 74-1673682.

4. BFI was the common parent of an affiiated group of corporations that fied consolidated federal income tax returs for the tax years at issue. Pursuant to Treas. Reg. §1.1502-77(a), BFI is duly authorized to act in its own name with respect to all matters relating to the tax liability of the affiiated group of corporations of which it was the common parent for all periods relevant to this action.

* * *

4 A taxpayer may request immediate disallowance of a refund claim in order to expedite litigation. Section 6532(a)(1) requires either the passage of six months or the disallowance of
the claim before suit can be filed.

-7-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 14 of 34

16(e). On or about May 5, 2005, BFI timely filed a timely claim for refud of. . .
taxes paid for the 1997 tax year with the IRS. . . .

(Proposed Finding 13.)5 The complaint was signed by counsel.6 The United States fied its
amended answer on December 21, 2005, asserting a counterclaim to recover assessed restricted

plaintiff s 1997 and 1998 years of more than $18 milion, plus statutory interest. Plaintiff filed a
reply on December 29,2005, which denied liability on the counterclaim and asserted various

"Affirmative Defenses and Other Matter," but which did not challenge the Cour's jurisdiction

over the counterclaim. (Proposed Findings 13-15.)
B. Corporate Status ofBFI Inc.

BPI Inc. was formed as a Delaware corporation during 1970. At the end of2004, Alled
decided to convert BFI Inc. from a Delaware corporation into a Delaware limited liability
company (LLC)7 because it believed that the conversion would reduce its tax liabilities. BFI's
Board of Directors adopted a resolution authorizing the conversion, which stated-

RESOLVED, that after the time the Certificate of Conversion becomes effective the converted Company shall continue to exist as a limited liability company. . . and the laws of the State of Delaware shall apply to the convert Company to the same extent as prior to (the conversion); and

5 Allied's fiings with the Securities and Exchange Commission, dated 2005, reported the
filing of the claims and the complaint as actions "we" had taken. (Allied annual report, Fact App. at 122.)

6 Pursuant to RCFC 11(b)(3), by so signing, counsel certified that he had conducted "an

inquiry reasonable under the circumstances" and that "the allegations and other factual contentions have evidentiary support. . ."
7 Delaware law distinguishes between regular corporations and limited liability companies

created pursuant to Title 6, Chapter 18 of the Delaware Code, entitled "Limited Liability Company Act."

- 8-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 15 of 34

RESOLVED, that the converted Company shall not be required to wind up its
affairs. . " and the Conversion shall not constitute a dissolution of

the Company

and shall constitute a continuation. . . . (Emphasis added).8 Even after the conversion, Alled continued to publish separate financial
statements for the former BFI Consolidated Group as part of

its SEC Form 10-K filings-as

required by covenants in its borrowing agreements with its lenders. The financial statements
thereafter published for BFI LLC were just a continuation of the financial statements published

for BFI Inc. prior to the conversion. (Proposed Findings 16-18.)
From a corporate law perspective, BPI Inc. never actually fied for dissolution, but rather

was converted in legal form from a corporation to an LLC. The conversion was accomplished

by the fiing of a "Certificate of Conversion From A Corporation to a Limited Liability
Company Pursuant to Section 266 of the Delaware General Corporation Law" on December 31,
2004. Thereafter the name of

the limited liabilty company was Browning-Ferris Industries,

LLC (BFI LLC). Both before and after this conversion, Allied remained the owner, either
directly or indirectly, of

the entities which had constituted the BFI Consolidated Group.

(Proposed Finding 19).

Consistent with the limited purose of

the conversion, Alled's annual report

describes the conversion, statingEffective for 2005, Browning-Ferris Industries, Inc. was converted to a single member limited liability company (LLC). Alled NA, a wholly-owned subsidiary of Allied Waste Industries, Inc., is the sole member in Browning-Ferris Industries, LLC and therefore BPI continues to be wholly-owned by Allied NA, which ownership has not changed since Allied acquired BFI in 1999.

(Allied annual report, Fact App. at 123 n9.)
-9 -

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 16 of 34

In addition, BPI Inc. conducted business as a foreign corporation in Arizona. There, it
incorporated under the name of

"Browning-Ferris Industries, Inc." and continued in corporate

existence until its charter was withdrawn in September 2006. To comply with Arizona's
reporting requirements, BFI Inc. fied annual reports for 2004 and 2005 on October 1 1, 2004 and
October 28,2005 respectively-the latter of

which was filed after the refud claims at issue here.
"Browning-Ferris Industries, Inc.," even though the later filing

Both were fied in the name of

occurred after BFI Inc.'s conversion in Delaware into an LLC. BFI Inc. also fied other
documents in Arizona under "Browning-Ferris Industries, Inc." subsequent to its conversion in
Delaware, including a change of

its statutory agent. On September 12,2006, after plaintiff

informed the Cour of its intent to move for dismissal of this case, simultaneous applications for
the withdrawal of

"Browning-Ferris Industries, Inc." and for the registration ofBFI as a foreign

LLC were filed with the state of Arizona. (Proposed Findings 20-22.)
C. The New Refud Claims.

The Federal Circuit issued its ruling in Coltee on July 12,2006, determining that the
contingent liability tax shelter transaction does not produce the remarkable tax benefits claimed

by taxpayers like plaintiff. Weeks later, plaintiff discovered the so-called 'jurisdictional issue"
addressed by the instant motion. At that time, plaintiff and its counsel recognized that, because
of the Coltec decision, plaintiff would benefit if it could arrange to litigate its contingent liability
claims outside the Cour of

Federal Claims. Plaintiff and its counsel further recognized that a

contention that the First BFI Claims were invalid might be a vehicle to have plaintiff s
substantive claims litigated outside the Cour of

Federal Claims. (Proposed Findings 23-24.)

- 10-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 17 of 34

Soon thereafter, on August 22,2006, the individual entities comprising the BFI
Consolidated Group filed a "Designation by Group Members Under §1.1502-77A(d)" with the
Internal Revenue Service, terminating BPI Inc. as the common parent of the BFI Consolidated
Group and designating BFI Waste Systems of

North America, Inc. as the Substitute Agent for

the group. That designation was approved by the Service on August 31, 2006. (Proposed
Finding 25.)
D. Plaintiffs change of

litigating position.

Plaintiff first presented its contention to the Court that the wrong entity had fied the

refund claim and the complaint at a hearing conducted on August 29,2006. At that time, Mr.
Karter stated-

we have come to the realization that the wrong plaintiff, a plaintiff that is no longer in legal existence fied both the federal tax refund claim, which is the prerequisite for jurisdiction for a federal tax refud suit, and the complaint in this matter.

(Tr. at 6) (emphasis added). Later, he added that-

the termination out of legal existence of Browning Ferris Industries, Inc. in December of 2004, before the refud claims were filed and before the action was
brought, was a defect that requires the dismissal without prejudice of this case.
(Tr. at 9) (emphasis added). At the hearing, Mr. Karer indicated (at 11-12) that new refund
claims had been filed. (Proposed Finding 26.)

In fact, plaintiff had fied two new sets of refud claims for the years in suit on August
22,2006. One set of refund claims was filed in the name of

"Browning Ferris Industries, LLC

for consolidated group f/ka Browning Ferris Industries, Inc. & Subsidiaries" (the "Second BFI
Claims"). The other set of refund claims was filed in the name of "BFI Waste Systems of

North

-11-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 18 of 34

America, Inc. Designee for Consolidated Group f/ka Browning Ferris Industries, Inc. and

Subsidiaries" (the "Third BFI Claims"). Just like the supposedly defective First BFI Claims, the
Second BFI Claims and the Third BFI Claims identify "Browning Ferris Industries, Inc. and

Subsidiaries" as the taxpayer which filed the original tax returns, reference the same taxable

periods, reference the same employer identification numbers, and describe the same contingent

liability tax shelter transaction as the grounds for the refund claim. The principal differences are
(1) the entity submitting the claims on behalf of

the BFI Consolidated Group (the First BFI

Claims were fied by BPI Inc., the Second BFI Claims were fied by BFI LLC, and the Third BFI
Claims were filed by BFI Waste Systems of

North America), and (2) a single paragraph in the

Second BFI Claims and the Third BFI Claims addressing agency of plaintiff. The Service has

taken no action on the Second and Third BPI Claims. (Proposed Findings 27-28).
ARGUMENT

Plaintiffs motion to dismiss invokes two different procedural rules to support plaintiffs
highly unusual attempt to abandon the lawsuit it filed more than a year ago in hopes of

recovering tens of milions of dollars in federal income taxes. It seeks a voluntary dismissal of
its complaint without prejudice under RCFC 41(a). Alternatively, its seeks dismissal of
defendant's counterclaim (but not the complaint) for lack of subject matter jurisdiction under
RCFC 12(b)(1). The gravamen of

plaintiffs motion is its contention that the First BFI Refund

Claims were a legal nullity and that, therefore, this Cour lacks subject matter jurisdiction over
the counterclaim because plaintiff has not made the mandatory refund claim required by Section
7422 of

the Internal Revenue Code. Plaintiffs arguments are contrary to both the law and the

- 12-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 19 of 34

facts.

i. RCFC 4l(a) DOES NOT AUTHORIZE VOLUNTARY DISMISSAL BECAUSE DISMISSAL WOULD PREJUDICE THE UNITED STATES AND REQUIRE DISMISSAL OF ITS COUNTERCLAIM.
RCFC 41(a), the primary authority cited in support of

plaintiffs motion for voluntary

dismissal, recognizes three different tyes of voluntary dismissals-dismissals by notice,
dismissals by stipulation, and dismissals by motion and order. In relevant part, the Rule

providesRule 41. Dismissal of Actions(a) Voluntary Dismissal: Effect Thereof. (1) By Plaintiff; by Stipulation. Subject to the provisions of Rule 23(e), of Rule 66, and of any statute of the United States, an action may be dismissed by the plaintiff without order of court (I) by filing a notice of dismissal at any time before service
by the adverse party of an answer or of a motion for summary judgment, whichever first occurs, or (ii) by fiing a stipulation of dismissal signed by all
parties who have appeared in the action. . . .
(2) By Order of Court. Except as provided in paragraph (1) of

this subdivision

of this rule, an action shall not be dismissed at the plaintiffs instance save upon order ofthe court and upon such terms and conditions as the cour deems proper.

If a counterclaim has been pleaded by a defendant prior to the service upon the defendant of the plaintifts motion to dismiss, the action shall not be dismissed against the defendant's objection unless the counterclaim can remain pending for independent adjudication by the court.
(Emphasis added). Here, dismissal by notice (under RCFC 41

(a)(1)(I)) is unavailable because

the United States has already fied its answer; and dismissal by stipulation (under RCFC
41 (a)(1 )(ii)) is unavailable because the United States does not consent to dismissaL. Plaintiff,

therefore, can seek a voluntary dismissal only through the motion and order process authorized

by RCFC 41(a)(2). As discussed below, RCFC 41(a) prohibits dismissal here for two distinct
reasons.
First, the highlighted portion of RCFC 41

(a)(2) bars allowance of a plaintiffs motion for
-13 -

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 20 of 34

voluntary dismissal because it would deprive the Court of

Federal Claims of

jurisdiction over the

$18.2 milion counterclaim plead by the United States. Under this rule, the critical question is
whether the United States' counterclaim can remain pending for independent adjudication; ifnot,
the motion for voluntary dismissal must be denied. In fact, the Cour of

Federal Claims'

jurisdiction over counterclaims is limited by 28 U.S.C. § 1503, which authorizes the Cour to
"render judgment upon any set-off or demand by the United States against any plaintiff in such
court." Binding precedent has construed this provision as depriving the court of

jurisdiction over

a counterclaim plead by the United States where the plaintiffs underlying suit is dismissed for
lack of subject matter jurisdiction. For example, in Mulholland v, United States, 175 Ct. Cl. 832,

836-37 (1966), the cour considered whether 28 U.S.C. § 1503 allowed it to resolve a

counterclaim fied by the United States after it had dismissed the plaintiffs complaint as timebarred by the statute of limitations. Dismissing the counterclaim, the Court of Claims explained

thatas the Court of Claims is generally without authority to adjudicate claims by the United States against other persons, it has been held that where the United States has asserted in this court a counterclaim against a plaintiff and the plaintiff s claim is rejected because of a lack of jurisdiction, the counterclaim must be dismissed along with the plaintiff s petition, without regards to the merits of the counterclaim.

Id. at 846. See also Daffv, United States, 78 F.3d 1566, 1571-73 (Fed. Cir. 1996); Palmer v,

United States, 38 Fed. Cl. 316,325-26 (1997). That same reasoning would apply here and
would deprive the Cour of Federal Claims of

jurisdiction over the $18.2 milion counterclaim

brought by the United States if

the Court dismissed plaintiffs complaint. Of greater importance,

that conclusion requires denial ofplaintiffs motion for voluntary dismissal under RCFC
-14 -

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 21 of 34

41

(a)(2) because dismissal of

the complaint would deprive the Court of

jurisdiction over the

counterclaim.
Second, plaintiffs motion to dismiss under RCFC 41

(a)(2) must be denied because it

wil unfairly prejudice the United States. A court must consider the prejudice to the defendant in

evaluating a motion for voluntary dismissal under RCFC 41

(a)(2) and must deny the motion ifit

wil produce "plain legal prejudice." Cone v. West Virginia Pulp & Paper Co., 330 U.S. 212,

217 (1947). Many different factors have been considered in determining whether dismissal
would produce "plain legal prejudice" and no precise calculus governs the determination.

Deuterium Corp, v, United States, 21 Cl. Ct. 132, 134-36 (1990). See generally, 9 Wright &
Miler, Federal Practice and Procedure: Civil § 2364 (1995).

Three ofthe factors often identified by cours as barring a voluntary dismissal because
they constitute "plain legal prejudice" are present here-the effect of dismissal on a pending
counterclaim, additional cost resulting from dismissal, and evidence that the plaintiff seeking

dismissal is engaging in impermissible foru-shopping. As explained above, defendant would
be prejudiced because allowance of plaintiffs motion would deprive the United States of

the

right to litigate its counterclaim in the Court of

Federal Claims. Tyco Lab" Inc, v. Koppers Co"

Ine" 627 F.2d 54,56 (7th Cir. 1980) ("Plain legal prejudice ... is more clearly shown where the
defendant has fied a counterclaim prior to the time that plaintiff

has moved to dismiss").

Additionally, defendant would be prejudiced based on the considerable time and effort in
litigating the case thus far, including approximately 1 100 attorney hours, plus other related
expenditures. See Alumni Association of the University of

North Carolina v, United States, 223

-15 -

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 22 of 34

Ct. Cl. 765 (1980) (voluntary dismissal denied where defendant had devoted time to preparation
of

interrogatories); Schweiger Construction Co, v. United States, 49 Fed. Cl. 188,209 (2001).

Finally, dismissal is not appropriate where a plaintiffs motion to dismiss is attributable to forum
shopping. See Placid Oil Co, v, Ashland Oil, Inc" 792 F.2d 1127, 1134, 1135 (Em. App. 1986)
(holding that a Rule 41

(a)(2) dismissal should be denied "when the plaintiffs purpose is so to

maneuver the litigation that the defendant wil lose his existing advantage"); Bamdad Mechanic
Co, v, United Tech. Corp., 109 F.R.D. 128, 132-33 (DDel. 1985); Weathersby v, General

Motors Corp" 2006 WL 2865058 (N.D. Miss. 2006) (concluding that "blatant forum shopping"
constituted plain legal prejudice to the defendant). Taken together, these factors demonstrate
that allowance of

plaintiffs motion for voluntary dismissal would produce plain legal prejudice.

Accordingly, the motion must be denied.

II. THE COURT OF FEDERAL CLAIMS HAS SUBJECT MATTER JURISDICTION OVER THIS SUIT.
Plaintiff s brief principally argues that BFI Inc. ' s fiing of the First BFI Claims was

insufficient to satisfy the jurisdictional requirement that the taxpayer must file a refud claim
prior to filing a refund suit. Of course, the complaint in this case, the supposedly invalid First
BFI Claims, and the supposedly valid Second and Third BFI Claims all seek identical
adjustments to the tax liability of the BFI Consolidated Group (not

just BFI Inc.) for identical tax

years and refer to the same taxpayer identification number. They all relate to the same
contingent liability tax shelter transactions, allege the same basic factual, advance the same legal
arguments, and were signed by the same individuaL. Indeed, virtually the only difference

- 16-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 23 of 34

between the supposedly insufficient First BFI Claims and the more recent claims is the name of

the entity identified as having fied the refund claims on behalf of the BFI Consolidated Group.

Nonetheless, plaintiffs argument reduces to two related assertions-(1) that BPI Inc. had
ceased to exist prior to its filing of the First BFI Claims, and (2) that BFI Inc.' s filing of the First

BFI Claims (which both plaintiff and the Service contemporaneously treated as sufficient

claims), therefore, did not constitute sufficient claims. While plaintiff fails to identify a single instance in which a court has dismissed a case under comparable circumstances, it further
contends that the law requires dismissal of this suit because of

plaintiffs supposed failure to

name the proper agent for the BFI Consolidated Group in its refund claim-another proposition
for which plaintiff

has cited no case law.

Of course, "a heavy dose of skepticism is in order when" a plaintiff reverses course after

an adverse decision on the merits to contend that the cour never had subject matter jurisdiction

over the plaintiffs own suit. Arthur W Mires, Trustee v, United States, 2006 WL 3072758
(10th Cir., Oct. 31, 2006). Regardless, as discussed below, plaintiffs motion fails for three
reasons. First, under Delaware state corporate law, BFI Inc. was a viable legal entity at the time

it filed the First BFI Claims. Second, contrary to plaintiff s assertions, BFI Inc. had authority to

fie refund claims on behalf of the BFI Consolidated Group at the time it filed the First BFI
Claims. Finally, even ifBFI Inc. had liquidated or was not the legally authorized agent of

the

BPI Consolidated Group, plaintiff cannot establish that these technicalities require the Cour to
dismiss this case and throw the BPI Consolidated Group out of

this cour (and into another court

more to its liking).

- 17-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 24 of 34

A. BFI Inc. was a legal entity at the time it filed the First BFI Claims.
The fundamental factual contention presented by plaintiff at the August 2006
hearing-that BFI Inc. had ceased to exist prior to its fiing of

the First BFI Claims-is simply

untrue. BFI Inc. had long existed as a Delaware corporation. All that happened in December
2004 was that it "converted" from a standard domestic corporation to a limited liability company

under Delaware's general corporation law. The applicable Delaware statute establishes that such
a conversion does not dissolve or terminate the pre-existing entity; rather, it provides as follows-

§ 266. Conversion of a domestic corporation to other entities.
(a) A corporation of

this State may, upon the authorization of such conversion in accordance with this section, convert to a limited liability company. . .
(e) After the time the certificate of conversion becomes effective the

corporation shall continue to exist as a limited liability company. . . .
(f) Unless otherwise provided in a resolution of conversion adopted in

accordance with this section, the converting corporation shall not be required to wind up its affairs or pay its liabilities and distribute its assets, and the conversion shall not constitute a dissolution of such corporation and shall constitute a continuation of the existence of the converting corporation in the form of the applicable other entity of this state.

(h) When a corporation has been converted to another entity or business form pursuant to this section, the other entity or business form shall, for all puroses of the laws of the State of Delaware, be deemed to be the same entity as the corporation. . . .
8 DeL. C. § 266 (2006) (emphasis added). Thus, BFI Inc. continued to exist after its conversion

under Delaware law, albeit in a slightly different form and with a slightly different name.
Even if

the conversion constituted a dissolution ofBFI Inc. under Delaware law (which it

did not), BFI Inc. retained the legal authority to litigate preexisting claims, such as this tax

- 18-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 25 of 34

refund suit. Like many other states, Delaware recognizes a "winding up" period following a
corporate dissolution during which the corporation may sue and be sued, providing that-

§ 278. Continuation of corporation after dissolution for purposes of suit and winding up affairs.
All corporations, whether they expire by their own limitation or are otherwise dissolved, shall nevertheless be continued, for the term of three years from such expiration or dissolution. . .. With respect to any action, suit or proceeding

begun by or against the corporation either prior to or within 3 years after the date of its expiration or dissolution, the action shall not abate by reason of
the dissolution of the corporation; the corporation shall, solely for the purpose

of such action, suit or proceeding, be continued as a body corporate beyond the 3year period and until any judgments, orders or decrees therein shall be fully executed, without the necessity for any special direction to that effect by the Court of Chancery.
8 DeL. C. § 278 (2006) (emphasis added). As BFI Inc. converted on December 31, 2004, filed

the First BFI Claims in May 2005 (which was a necessar prerequisite to suit), and fied the
complaint on July 8, 2005, it had the legal authority to file the First BFI Claims on behalf of

the

BFI Consolidated Group even if its conversion constituted a dissolution (which it did not).

Analogous federal income tax law reaches the same conclusion-that BFI Inc. "existed" at

the time it fied the First BFI Claims. Similar questions regarding the existence of a corporation
during its winding up period have arisen where corporations which have ceased business have
contended that they were no longer required to file federal income tax returs. Those questions

are now controlled by a regulation which requires dissolving corporations with valuable claims

and assets to fie returs, providing as follows-

§ 1.6012-2 Corporation required to make returns of income.
(a)(2) Existence of corporation. A corporation in existence during any portion

of a taxable year is required to make a return. . . . A corporation is not in existence after it ceases business and dissolves, retaining no assets, whether or
-19 -

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 26 of 34

not under State law it may thereafter be treated as continuing as a corporation for certain limited purposes connected with winding up its affairs, such as for the
purpose of suing and being sued. If the corporation has valuable claims for

which it wil bring suit during this period, it has retained assets and therefore continues in existence.
26 C.F.R. § 1.6012-2 (2006) (emphasis added). See also HerslojJv. United States, 310 F.2d
947,949,951 (Ct. Cl. 1962), cert, denied, 373 U.S. 923 (1963) (a corporation, whose charter had
expired, continued to exist for federal income tax puroses partly due to the retention of a
World War I vintage claim against Britain). Here, the existence of

the BFI Consolidated

Group's tax claims relating to the contingent liability tax shelter transaction for the pre-merger
years would establish BFI Inc. ' s continued existence, even if it had formally dissolved under
state law. Plaintiffs contrary contention thus fails as a matter of

both fact and law.
the

B. BFI Inc. had authority to file the First BFI Claims on behalf of

BFI Consolidated Group.

Plaintiffs alternative contention (at 7-13) that BFI Inc. could not file refund claims for
the BFI consolidated group when the First BFI Claims were submitted to the Service is based

upon two related propositions. Primarily, plaintiff contends that, under the "entity classification
regulations" set forth under Treas. Reg. § 301-7701, BFI Inc. dissolved or ceased to exist for
federal income tax purposes when it converted into a Delaware LLC and was thus rendered

incapable of fiing a refund claim on behalf of the BFI Consolidated Group. That contention
lacks merit.

The "entity classification regulations" codified in Treas. Reg. § 301.7701 reflect the tax
law's recognition that individuals and businesses can conduct their economic affairs through
many different types of entities (e.g., partnerships, corporations) and that federal income tax law

-20-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 27 of 34

treats these different tyes of entities differently. As a result, the classification of an entity can

be an important issue in federal income tax law. The law, as set forth in the entity classification
regulations, generally allows entities to elect their own classification, but establishes "default

classifications" where no election is made. In addition, as a business can change the manner in
which it organizes its economic affairs, the regulations also address the tax consequences of a
change from classification as one class of entity into another.

Here, plaintiff misreads the entity classification regulations when it argues that the
regulations require treatment of

the conversion ofBFI Inc. into BFI LLC as a liquidation ofBFI

Inc., which deprived it ofthe capacity to pursue refud claims. Plaintiff is correct when it argues
that when a corporation or association converts into an LLC and chooses to be treated as a

disregarded entity, "the following is deemed to occur: The association distributes all of its assets
and liabilities to its single owner in liquidation of

the association." Treas. Reg. §301.7701-

3(g)(l )(iii). However, the same set of regulations establish that BFI LLC retained authority to
pursue refund claims on behalf of the BFI Consolidated Group after the conversion because a

"disregard entity" is not disregarded for certain puroses, including fiing of refud claims,
under Treas. Reg. §301.7701-2(c)(2)(iii)(A), which providesIn general. An entity that is otherwise disregarded as separate from its owner is treated as an entity separate from its owner for
purposes of:

the entity with respect to any taxable period for (1) Federal tax liabilities of which the entity was not disregarded,
(3) Refunds or credits of

Federal tax.

-21-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 28 of 34

Thus, characterization of BFI LLC as a disregarded entity under the entity classification

regulations did not deprive BFI Inc. of the capacity to file a refud claim on behalf of the BFI
Consolidated Group. It is not disregarded with respect to the periods prior to its

conversion-including the periods in suit-and it is not disregarded for puroses of seeking credits
or refunds like those sought in this suiU
C. BFI has not established that fiing of refud claims by the incorrect BFI subsidiary on behalf of the BFI Consolidated Group would
defeat the Court's subject matter jurisdiction over the claims of the

BFI Consolidated Group.

The claim for refud requirement-the focus ofplaintiffs motion-has its origin in the
well-settled rule that the United States, as a sovereign, may be sued only to the extent that it has
consented to suit, and that the terms of

that consent define the cour's jurisdiction. United States

v, Dalm, 494 U.S. 596, 608-10(1990). As applicable here, that consent is conditioned upon the
statutory requirement codified in Section 7422(a) that, in order to maintain a tax refud suit in

this Cour, a taxpayer must first file a claim for refud. That statute provides, in par, as follows:
§ 7422. CIVIL ACTIONS FOR REFUN. (a) No Suit Prior to Filing Claim for Refud.-- No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax. . . until a

9 None of the authorities from the field of consolidated returs cited by plaintiff mandate a

contrary conclusion. The regulation upon which plaintiff principally relies, Treas. Reg.
§ 1.1502-77 A( d), imposes obligations upon taxpayers when the common parent has dissolved or

terminated, and gives the Service rights in the event taxpayers fail to fulfill those obligations; it does not, as plaintiff apparently claims, give taxpayers the right to treat the actions of the dissolved or terminated common parent as voidable at the taxpayer's option. The preamble to a set of proposed regulations inapplicable to the years in suit cited by plaintiff (at 8-9) likewise do not explicitly give consolidated return taxpayers the right to disavow the actions of a terminated common parent, as advocated by plaintiff. Finally, none of the Tax Court cases cited by plaintiff (at 7-8) provide consolidated return taxpayers with the rights plaintiff seeks.
-22 -

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 29 of 34

claim for refud or credit has been duly fied with the Secretary, according to the
provisions of law in that regard. and the regulations of the Secretar established

in pursuance thereof.

(Emphasis added.) This statute has two principal components-(l) it requires filing of a refud
claim as a prerequisite to suit, and (2) it authorizes the Service to promulgate regulations

defining the required contents for a the claim for refud.
In this case, no question exists regarding whether the First BFI Claims were fied on
behalf of the BFI Consolidated Group with the Service, as required by the statutory

language-they were. What plaintiff contends, as discussed in the prior section, is whether those
refund claims were in the form required by the regulations. Yet, even if plaintiff were correct in
contending that the First BFI Claim was not in the form required by the regulations, a separate question would arise regarding the consequences if plaintiff failed to fully comply with the
formalities of

those regulations. Plaintiff did not address that question and, as outlined below,

the law clearly establishes that a refund claim which fails to comply with the requirements of the

regulations may stil satisfy the statutory claim for refund requirement, particularly where (as
here) the Service treats the refund claim addresses the merits of the claim.

The case law has repeatedly distinguished between a failure to fie a refund claim, and a

failure to fie that refund claim in the form required by the regulations. The Supreme Court has
distinguished between (1) the statutory claim for refud requirement, and (2) the regulations

prescribing the required form and contents of a refud claim. While the Treasur may not waive
the congressionally mandated requirement that a formal claim be filed, the Treasury can waive

its own formal requirements where the IRS has suffcient knowledge of the claim and makes a

-23 -

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 30 of 34

determination on the merits. Tucker v, Alexander, 275 U.S. 228, 231 (1927) (the Treasury,

through its delegate, the IRS, can waive the formalities of the regulation), See also United States
v. Memphis Cotton Oil Co., 288 U.S. 62 (1933); American Radiator & Standard Sanitary Corp.
v. United States, 318 F.2d 915 (Ct. Cl. 1963). In sum, a failure by plaintiff

to fie a refund claim

in strict compliance with the regulations is not necessarily fatal to this Court's jurisdiction over
this suit.

These principles are best ilustrated by the many cases that have been litigated
concerning the adequacy of the taxpayer's description of

its claim, an issue governed by Treas.

Reg. § 301.6402-2(b)(1). That regulation provides that:

The claim must set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof.. .
This Court has interpreted this regulation in view of the purose of the refund claim requirement;
the requirement is designed both "to prevent surrise and to give adequate notice to the Service

of the nature of the claim and the specific facts upon which it is predicated, thereby permitting

an administrative investigation and determination." See Ottawa Silca Co. v, United States, 699
F.2d 1124, Ct. Cl. 219,454 F.2d 1379, 1383 (Ct. Cl. 1972) (quoting Union Pacifc R. Co, v,

United States, 182 Ct. Cl. 103,389 F.2d 437, 442 (Ct. Cl. 1968), cert denied, 395 U.S. 944
(1969). In short, an "informal" refund claim, which does not comply with the regulations'
requirement that it "set forth in detail each ground" or the "exact basis" for the claim can be

adequate if it is "sufficient to apprise" the Service of the claim. Applying those principles, this
Court has ruled, for example, that a tax return submitted without any explanation could satisfy

-24-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 31 of 34

the claim for refud requirement. Levitsky v, United States, 27 Fed. Cl. 235, 240-42 (1992). If
the Court concluded that the Service understood the nature of

the taxpayer's dispute, technical

compliance with the regulations prescribing the contents of the taxpayer's refud claim was not
required.

This same authority would treat any defect in the form of the First BFI Claims as

inconsequential, if (as here) the Service considered those claims in spite of their formal defects
(and thereby waived the formal requirements of the regulations). Until plaintiff

recently raised

the instant dispute, both plaintiff and the Service had treated the First BFI Claims as having

adequately apprised the Service of the claims of the BFI Consolidated Group. In fact, the notice
of disallowance plainly indicates that the claims filed by BFI Inc. were denied on the merits,

statingThis letter is your legal notice that we have fully disallowed your claims listed above. Your claims for refund or credit for tax periods ending September 30, 1997, September 30, 1998, and July 30, 1999 have been disallowed in full for the reasons stated in the attached.

Under the circumstances, strict compliance with the requirements set forth in the Treasur
Regulations for the fiing of a formal refund claim has been waived by the Service. The First

BFI Claims-fied on behalf of the BFI Consolidated Group-apprised the IRS of the basis of the
claims and were examined by the Service on the merits, even if they contained technical flaws.

They, therefore, constitute adequate informal claims, which are sufficient to confer jurisdiction
in this case.

-25 -

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 32 of 34

III. RCFC 17 AND 25 ESTABLISH THAT SUBSTITUTION OF THE

APPROPRIATE PARTIES IN INTEREST is THE PROPER PROCEDURE FOR ADDRESSING CHANGES IN THE STATUS OF AN ENTITY
This case, of course, is not the first instance in which the identity of a part has

changed during the course of a controversy through death of an individual or the transfer

of a corporation. In those circumstances, this Cour's rules establish that such issue are
resolved through substitution of the successor to the original part, not dismissal of

the

action. For example, RCFC 25(c) provides thatIn case of any transfer of interest, the action may be continued by or against the
original par, unless the cour upon motion directs the person to whom the

interest is transferred to be substituted in the action or joined with the original party. RCFC 17(a) even more emphatically supports substitution as the proper procedure, stating-the real party in interest. . . . No action shall be dismissed on the ground that it is not
(a) Real Party in Interest. Every action shall be prosecuted in the name of

prosecuted in the name of the real par in interest until a reasonable time has
been allowed after objection for ratification of commencement of

the action by, or

joinder or substitution of, the real part in interest; and such ratification, joinder,

or substitution shall have the same effect, as if the action had been commenced in
the name of the real party in interest. i

The bottom line, under either rule, is that plaintiff may (if it so desires) substitute or join some

other BFI entity as the part in this action, and the United States would not oppose such a
motion. Dismissal of the action, however, is not allowed.

i

RCFC 1 7(b), which governs the capacity to sue or be sued establishes that- "The capacity of a corporation to sue or be sued shall be determined by the law under which it was organized." Here, as established supra, Delaware law authorizes BFI Inc. to prosecute this action.

-26-

Case 1:05-cv-00738-TCW

Document 32

Filed 11/22/2006

Page 33 of 34

Finally, the United States observes that plaintiff

has remedies far less drastic than

dismissal available if its concerns about this Court's jurisdiction BFI Inc.' s capacity to prosecute
are genuine. It could, for example, have BFI LLC or BPI Waste Systems file additional

complaints in this Court based upon the Second BFI Claims or the Third BFI Claims, and then

have those cases either stayed or consolidated with this action. Doing so would ensure that its
present concerns about jurisdiction would never deprive it of its opportunity to prosecute its

claims. However, it may not use those supposed concerns about jurisdiction as an excuse to

forum shop. Plaintiff chose to litigate the claims of the BFI Consolidated Group in this Cour in
hopes of availing itself of the trial court decision in Coltec; it may not reverse that choice now
because of

it