In Re Franklin Savings Corp.

133 B.R. 154, 1991 WL 219078
CourtUnited States Bankruptcy Court, D. Kansas
DecidedNovember 25, 1991
Docket19-06002
StatusPublished
Cited by2 cases

This text of 133 B.R. 154 (In Re Franklin Savings Corp.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Kansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re Franklin Savings Corp., 133 B.R. 154, 1991 WL 219078 (Kan. 1991).

Opinion

MEMORANDUM OF DECISION

JOHN T. FLANNAGAN, Bankruptcy Judge.

This matter is before the Court on the motion of the Resolution Trust Corporation (“RTC”), as conservator for Franklin Savings Association (“FSA”), seeking mandatory withdrawal of reference under 28 U.S.C. § 157(d) and Local District Court Rule 706(a)(4). Debtor Franklin Savings Corporation (“FSC”) has responded with a motion to dismiss the RTC/FSA motion for mandatory withdrawal of reference.

FSC appears by its attorney, Jonathan A. Margolies of McDowell, Rice & Smith, Chartered; RTC/FSA appears by its attorneys, H. David Barr and R. Kent Sellers of Gage & Tucker.

*155 BACKGROUND

FSC is a Kansas corporation holding over 90 percent of the stock of FSA. FSA is a Kansas stock savings and loan association, itself the parent of other affiliated corporations.

On June 10,1988, FSC and its subsidiary, FSA, entered into a Tax Reimbursement Agreement and a Tax Forgiveness Agreement.

The Tax Reimbursement Agreement establishes FSC as the agent for the affiliated group to file a consolidated federal income tax return as permitted by the federal income tax regulations. The agreement further establishes the manner in which FSA’s tax liability will be computed for purposes of the consolidated tax return; the manner in which FSA will pay its tax liability; the procedure by which FSA will compute and recover income taxes resulting from its losses and excess credits; and the termination of, the successors to and the law that governs the agreement.

The Tax Forgiveness Agreement spells out how FSA’s tax indebtedness to FSC will be forgiven; the effect of FSA’s losses and excess credits on its tax liability to FSC; the corporate record-keeping required to document actions taken under the agreements; and the termination of, the successors to and the law that governs the ágreement.

In February of 1990, the Office of Thrift Supervision (“OTS”) appointed RTC as conservator for FSA. RTC took conservator-ship control of FSA on February 16, 1990.

In anticipation of and prior to this regulatory action, the Board of Directors of FSA had requested Ernest M. Fleischer, on behalf of FSA, to resist by all appropriate means any adverse regulatory action against FSA. Mr. Fleischer is Chairman of the Board of Directors of FSC, the debtor.

Exercising this authority, on March 12, 1990, Mr. Fleischer caused FSC to file an action in its name and in the name of FSA against the OTS in the United States District Court for the District of Kansas demanding removal of RTC as conservator of FSA.

On September 5, 1990, after a trial, The Honorable Dale E. Saffels ordered RTC removed as conservator of FSA. However, the United States Court of Appeals for the 10th Circuit stayed Judge Saffels’ order pending an appeal by the OTS and reinstated RTC as conservator in control of FSA. Ultimately, the 10th Circuit Court of Appeals reversed Judge Saffels’ decision favoring FSC.

Mr. Fleischer has announced his intention on behalf of FSC and FSA to petition the United States Supreme Court for a writ of certiorari to the 10th Circuit Court of Appeals.

In April of 1991, FSC received a federal income tax refund of $1,958,233 that allegedly resulted from overpayment by subsidiaries of FSA for the 1990 tax year. This refund is said to include a reimbursement of $15,000 paid by FSA in connection with an extension of the filing of the federal consolidated return.

On May 15, 1991, FSC received a second federal income tax refund in the amount of $8,274,949. This refund is alleged to be the result of a net operating loss carryback derived from the operations of FSA during the 1990 tax year. The carryback was applied to tax years 1988, 1989, and 1990 1 .

FSC placed the total $10.2 million in tax refunds into Treasury Notes held at a New York bank.

On April 17, 1991, FSC notified RTC/ FSA of the refunds. On April 30, 1991, RTC/FSA made written demand on FSC for delivery of the refunds on the grounds that the “tax sharing agreement between FSA and FSC, certain applicable case law, and “general principles of equity” entitled FSA and its subsidiaries to the refunds.

On May 17, 1991, FSC filed suit in the United States District Court for the District of Kansas against RTC/OTS in a suit styled, “Franklin Savings Corporation v. Resolution Trust Corporation,” Case No. 91-4079-R. The action sought a' declaratory judgment that FSC was entitled to the *156 tax refunds totalling approximately $10.2 million. FSC also sought an award of $2 million for attorneys’ fees and expenses allegedly incurred while litigating with the OTS in the prior conservatorship challenge suit.

RTC/FSA responded with an answer and counterclaim. In substance, RTC/FSA’s counterclaim alleges that it is entitled to the $10.2 million in tax refunds under the terms of the Tax Reimbursement Agreement and upon principles of common law and equity.

After filing its answer and counterclaim, RTC/FSA filed a motion for an order of attachment and for a preliminary injunction requesting the District Court to enjoin FSC from using or dissipating the tax refunds. The alleged basis for this injunctive relief was 12 U.S.C. § 1821(d)(18) and (19), a new statute enacted in the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990 (Title XXV of the Crime Control Act of 1990, Section 2521, 104 Stat. 4859 (1990)). The text of the act is as follows:

(d) Powers and duties of Corporation as conservator or receiver....
(18) Attachment of assets and other in-junctive relief
Subject of paragraph (19), any court of competent jurisdiction may, at the request of—
(A) the Corporation (in the Corporation’s capacity as conservator or receiver for any insured depository institution or in the Corporation’s corporate capacity with respect to any asset acquired or liability assumed by the Corporation under section 1821, 1822, or 1823 of this title); or
(B) any conservator appointed by the Comptroller of the Currency or the Director of the Office of Thrift Supervision,
issue an order in accordance with Rule 65 of the Federal Rules of Civil Procedure, including an order placing the assets of any person designated by the Corporation or such conservator under the control of the court and appointing a trustee to hold such assets.
(19) Standards
(A) Showing
Rule 65

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Bluebook (online)
133 B.R. 154, 1991 WL 219078, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-franklin-savings-corp-ksb-1991.