Opinion
Case No. 01-16034 (AJG), Jointly Administered.
May 23, 2005
Carol E. Momjian, Senior Deputy Attorney General, OFFICE OF ATTORNEY GENERAL COMMONWEALTH OF PENNSYLVANIA, Philadelphia, PA, Attorneys for the Commonwealth of Pennsylvania.
Martin J. Bienenstock (MB 3001), Brian S. Rosen (BR 0571), Martin A. Sosland (Pro Hac Vice), WEIL, GOTSHAL MANGES LLP, New York, New York, Attorneys for the Reorganized Debtors.
Enron North America Corp. (Box Number 6737-411) ("ENA"), as a reorganized debtor, and the Commonwealth of Pennsylvania, Department of Revenue (the "Pennsylvania"), by and through their respective undersigned counsel, do hereby stipulate and agree as follows:
RECITALS
A. Commencing on December 2, 2001 (the "Petition Date"), and periodically thereafter, Enron Corp. ("Enron") and certain of its direct and indirect subsidiaries (collectively, the "Reorganized Debtors"), including ENA, each filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court").
B. The Reorganized Debtors' chapter 11 cases (the "Chapter 11 Cases") have been procedurally consolidated for administrative purposes. Prior to their emergence from chapter 11, the Reorganized Debtors continued to be authorized to operate their business and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.
C. On July 15, 2004, the Court entered an order confirming the Supplemental Modified Fifth Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code, dated July 2, 2004 (the "Plan"). On November 17, 2004, the Plan became effective and the Reorganized Debtors emerged from chapter 11.
D. By order dated August 1, 2002 (the "Bar Date Order"), and pursuant to Rule 3003(c)(3) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), this Court set October 15, 2002 as the deadline by which proofs of claim were required to be filed in these Chapter 11 Cases (the "Bar Date").
Pursuant to the Bar Date Order, the Bar Date applicable to each of the Reorganized Debtors that filed its respective Schedule subsequent to July 31, 2002 is the last business day of the month that is two months after the date of the filing of such Schedules.
E. Pursuant to its Order in Aid of Plan Confirmation, dated November 16, 2004 (the "Effective Date Order"), this Court, inter alia, set January 17, 2005 (the "Admin Bar Date") as the deadline by which administrative expense claims were required to be filed in these Chapter 11 Cases and approved the form and manner of notice relating thereto.
F. On or about May 1, 2002, June 19, 2002, May 30, 2003, and August 4, 2004, respectively, Pennsylvania filed four (4) separate proofs of claim against ENA relating primarily to capital stock-franchise taxes allegedly due for 1997, 1998, 1999, and 2000, which were assigned claim numbers 1935, 2276, 22990, and 24998, respectively. Claim numbers 1935, 2276, and 22990 have already been disallowed and expunged by prior orders of the Bankruptcy Court as having been amended and superceded by the subsequently filed claim. See Docket Nos. 10509, 14060, and 21811, respectively.
G. Pennsylvania's remaining claim for alleged prepetition tax liabilities, claim number 24998, asserts a claim in the total amount of $134,291.03, of which $71,225.00 is asserted as a secured claim, $54,855.00 is asserted as a priority claim pursuant to section 507(a)(8) of the Bankruptcy Code, and $8,211.03 is asserted as a general unsecured claim (the "Prepetition Claim"). A true and correct copy of the Prepetition Claim is attached hereto as Exhibit A.
H. While a majority of the Prepetition Claim relates to corporate stock-franchise tax allegedly due to Pennsylvania, $4,953.03 of the Prepetition Claim relates to penalties assessed in connection with an alleged sales tax obligation due to Pennsylvania for the period of January 1998 through June 2001 under the Sales Tax License No. 99-667848 (the "Prepetition Sales Tax").
I. On or about August 4, 2004, Pennsylvania filed an administrative expense claim in the total amount of $215,954.45 against ENA relating to capital stock-franchise tax and sales tax obligations allegedly due for 2001, 2002, 2003, and part of 2004 ( i.e. through July 15, 2004) (Claim No. 24999, the "Admin Claim"). A true and correct copy of the Admin Claim is attached hereto as Exhibit B.
Although the cover page of the Admin Claim purports to assert a claim for state sales and use taxes in addition to the capital stock-franchise taxes, the documentation attached to the claim only shows amounts allegedly due for capital stock-franchise taxes.
J. With respect to each of the years covered by the Prepetition Claim, ENA has filed with Pennsylvania the appropriate capital stock-franchise tax return and paid to Pennsylvania the amount of the franchise taxes due in accordance therewith.
K. For each of the years covered by the Admin Claim, ENA has filed with Pennsylvania the appropriate capital stock-franchise tax return and paid to Pennsylvania the amount of the franchise taxes due in accordance therewith; except for the 2004 tax year, for which no estimated payments were made and for which a tax return is not due until October 15, 2005 (the "2004 Taxes").
L. In connection with the massive claims review process that the Reorganized Debtors have undertaken in connection with the Chapter 11 Cases, ENA has reviewed the Prepetition Claim and the Admin Claim (collectively, the "PA Claims") and the relevant background information relating thereto, and determined that it does not agree with the amounts asserted in the PA Claims, nor with certain aspects of the asserted classification contained therein.
M. Following ENA's review of the PA Claims, ENA believed that the PA Claims should be not only disallowed and expunged in their entirety, but that Pennsylvania should refund to ENA overpayments totaling $611,089.00 made to Pennsylvania in connection with the capital stock-franchise tax returns filed by ENA for each of the tax years, other than 2004, covered by the PA Claims.
N. On or about February 24, 2005, ENA sent a letter to Pennsylvania with detailed spreadsheets and related attachments setting forth, in precise detail, the calculation of the overpayments and requesting that Pennsylvania resettle ENA's alleged capital stock-franchise tax liability for each of the tax years covered by the PA Claims and refund to ENA the amount of the alleged overpayments.
O. On or about March 11, 2005, ENA filed the Objection of Enron North America Corp. to Proofs of Claim Filed by the Commonwealth of Pennsylvania (Claim Nos. 24998 and 24999) (Docket No. 24342, the "Objection"), pursuant to which it objected to the amount and classification of the PA Claims.
P. Pennsylvania has recently completed its recalculation or resettlement of ENA's corporate stock-franchise taxes due, other than the 2004 Taxes, for each of the tax years covered by the PA Claims and has determined that ENA is entitled to corporate stock-franchise tax credits on account of overpayments totaling $609,551.00 (collectively, the "Overpayment") made to Pennsylvania for the 1999, 2000, 2001, 2002, and 2003 tax years.
Q. ENA and Pennsylvania wish to settle the Objection to the PA Claims and, pursuant to this Stipulation, have agreed to reconcile and settle the PA Claims and all matters related to any claims that were or could have been asserted by Pennsylvania against ENA for obligations allegedly due in connection with any tax, interest or penalty arising during the tax years covered by the PA Claims (collectively, with the PA Claims, the "Tax Claims").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned parties stipulate and agree as follows:
AGREEMENT
1. Except for (a) the Prepetition Sales Tax portion of the Prepetition Claim totaling $4,953.03 and (b) a portion of the interest and penalties totaling $4,221.00 (the "Allowed Corporate Tax") related to the corporate stock-franchise tax asserted pursuant to the Prepetition Claim, each of the PA Claims shall be disallowed and expunged in its entirety with prejudice.
2. Notwithstanding anything in decretal Paragraph 1 of this Stipulation and Order, ENA shall timely file its tax return for the 2004 Taxes and timely pay any and all taxes due thereunder. The 2004 Taxes shall be settled and/or reconciled by the parties, to the extent necessary, in the ordinary course as provided under applicable law.
3. As soon as practicable, but no later than 6 weeks after the date on which the time to appeal this Stipulation and Order expires pursuant to Bankruptcy Rule 8002 or on which any timely appeals of this Stipulation and Order are finally resolved, Pennsylvania shall (a) credit the Overpayment against (i) the Prepetition Sales Tax portion of the Prepetition Claim, $4,953.03, and (ii) the Allowed Corporate Tax portion of the Prepetition Claim, $4,221,00, and (c) shall refund the remainder of the Overpayment, totaling $600,376.97, to ENA at the following address: Enron North America Corp., Attn: Edward Coats, 1221 Lamar, Suite 1600, Houston, Texas 77010.
4. To the extent necessary, the automatic stay imposed by section 362 of the Bankruptcy Code shall be lifted to allow Pennsylvania to setoff the Overpayment against the Prepetition Sales Tax portion of the Prepetition Claim in accordance with the provisions of decretal Paragraph 3 hereof.
5. Upon entry of this Stipulation and Order by the Bankruptcy Court, (a) notwithstanding Section 42.3 of the Plan, Pennsylvania shall release and discharge ENA and its estate (collectively, the "Debtor Released Parties") from any and all Tax Claims, including, but not limited to, the PA Claims and (b) in accordance with the provisions of Article XLII of the Plan, Pennsylvania shall not take any action against any of the Debtor Released Parties in connection with or related to the Tax Claims, including, but not limited to, the PA Claims; provided, however, that nothing in this decretal Paragraph 5 shall prevent Pennsylvania from recovering (a) the Prepetition Sales Tax and the Allowed Corporate Tax portions of the Prepetition Claim from ENA as set forth in decretal Paragraph 3 of this Stipulation and Order, and (b) the 2004 Taxes as set forth in decretal Paragraph 2 of this Stipulation and Order.
6. The Objection shall be denied as moot.
7. This Stipulation and Order represents the entire agreement of the parties and supersedes all prior agreements or understandings relating to the PA Claims and any Tax Claims, whether written or oral. This Stipulation and Order may be amended, modified, or supplemented only by a written instrument executed by all the parties hereto, which shall be so-ordered by the Bankruptcy Court.
8. Each party acknowledges that it has entered into this Stipulation and Order of its own free will, based upon its independent business judgment and advice from the counsel of its choice, and without reliance on any representations of or inducements from any other party.
9. This Stipulation and Order may be executed in any number of counterparts or with detachable signature pages and shall constitute one agreement, binding upon all parties thereto as if all parties signed the same document; all facsimile signatures shall be treated as originals for all purposes.
10. If this Stipulation and Order is not approved by the Bankruptcy Court, the parties shall possess all rights and defenses which they possessed prior to executing this Stipulation and Order.
11. This Stipulation and Order shall be effective as of the date executed by the parties, without regard to the date of its entry by the Bankruptcy Court.
12. The Bankruptcy Court shall retain jurisdiction to interpret and enforce this Stipulation and Order.
Exhibit A and B