Company liquidating trust
In particular, Am Base alleged that, when the IRS dispute arose during the 1980s, the Trustee Defendantsapparently taking the position that Am Base was primarily responsible for the alleged withholding obligation, caused Am Base to effectively assume the costs and expenses of defending against the alleged withholding obligation without obtaining independent professional advice or guidance concerning whether the alleged withholding obligation was the primary obligation of Ambase, or the Trust, as successor to [City].Competent and independent professional advisors likely would have informed management that the alleged withholding obligation was an obligation for which the Trust [was] primarily liable.Moreover, Am Base did not demand that the Trust pay the taxes allegedly owing, nor did it demand that the Trust assume the defense against the IRS.On or about May 11, 1995, the IRS issued a Notice of Deficiency to Am Base, claiming entitlement to the funds that it alleged should have been withheld.Schedule I listed among the liabilities assumed “any cost, expense or liability associated with any claim asserted against City with respect to any act or omission attributable to its operations or affairs which has not been discharged in full or adequately provided for.” In addition, Schedule I included, as a liability of the Trust, the costs and liabilities incurred in the defense of any litigation arising after September 25, 1985, in which City Investing was a defendant. During this time, American companies looking to raise money in the Eurobond market often formed a wholly-owned subsidiary in the Netherlands Antilles, which would issue debt securities in the Eurobond market that were guaranteed by the American parent corporation. The Netherlands Antilles subsidiary would then lend the Eurobond offering proceeds to the U. In 1974, City formed a wholly-owned subsidiary in the Netherlands Antilles. “The payment of principal and interest on these notes was unconditionally guaranteed by City.” Id. The IRS later extended that claim to the period covering tax years 1981 through 1985.Tax liabilities were not expressly mentioned in Schedule I. Tax Dispute During the latter half of the 1970s, City sought access to the Eurobond market to obtain long-term financing at a fixed rate of interest and to reduce the amount of indebtedness it had borrowed from its American bankers under a revolving credit agreement. In 19, City raised million and million, respectively, from the Eurobond market through its Netherlands Antilles subsidiary. Furthermore, the notes provided that the issuer would indemnify the holders with respect to any American withholding taxes that might be imposed. City's Netherlands Antilles subsidiary immediately lent the proceeds from the Eurobond offering to City. The amount of the withholding at issue was almost million.
Shortly after the Assignment Agreement was executed, City and the Trustees entered into a Trust Agreement. Among other things, the Trust Agreement provided that the Trustees were to “assume all the claims, liabilities, and obligations (including unascertained or contingent liabilities in expenses) of [City]” listed on Schedule I of the Trust Agreement. Without such indemnification, “[f]oreign investors would not have purchased Eurobond obligations ․ because the imposition of withholding taxes would decrease their [rate of] return on the Eurobond obligations.” Id. S.-Netherlands Income Tax Convention, as extended by protocol to the Netherlands Antilles.” Id. The IRS claimed that this subsidiary did not meet the requirements for exemption from United States withholding taxes.
Am Base sought a preliminary injunction preventing the Trust from making distributions that would endanger the Trust's ability to pay the withholding tax liability, which had by then grown to 1 million.
Am Base also sought the recovery of .2 million in legal expenses and related costs that it had allegedly incurred in connection with the IRS dispute and the Tax Court litigation.
This dispute concerned certain tax liabilities that allegedly were assumed by the predecessor corporation of defendant-appellee City Investing Company Liquidating Trust (the “Trust”). For the reasons that follow, we conclude that Am Base's claims are barred as a matter of law by the doctrine of res judicata. Certain directors and officers of City (“Trustee Defendants”) occupied certain fiduciary positions with both Am Base and the Trust.
The District Court dismissed the complaint upon a finding that the express contractual indemnification claim pleaded therein failed to state a claim upon which relief could be granted and that the restitution, unjust enrichment, implied contract, and breach of fiduciary duty claims were time barred by New York's statute of limitations. Accordingly, we affirm the judgment of the District Court without reaching the merits of whether Am Base's various claims either fail to state a claim upon which relief can be granted or are time barred. The Parties City Investing Company (“City”) was a publicly-held Delaware holding company that was dissolved and liquidated in 1985. Defendant-appellee George Scharffenberger was a Trustee of the Trust since its creation and served as Chairman of the Board of Directors of Am Base from prior to 1985 until January 1993, and as Am Base's Chief Executive Officer from March 1990 until May 1991.