Albright v. Gates, bankruptcy, Congressman Traficant, Davidovich v. Welton, debt adjustment, HJR 192, In Re Davidovich, In Re TLC Hospitals, Lee v. Schweiker, Logical Relationship Test, Malinowshi v. N. State Department of Labor, Moore v. New York Cotton Exchange, Newbery Corp. v. Fireman's Fund, Pinkstaff v. Untied States, recoupment, set-off, United States v. Bulson, United States v. Nordic Village Inc, University Medical Center v. Sullivan
DOCTRINE OF DEBT ADJUSTMENT (and SET-OFF)
IN BANKRUPTCY (BOTH SIDES OF THE ACCOUNT)
On March 17, 1993, Congressman Traficant stated in the House of Representatives: (“Mr. Speaker. We are now here in Chapter 11. Members of Congress are official trustees presiding over the greatest reorganization of any bankrupt entity in world history, the U.S. Government.”): Congressional Record, March 17, 1993, Vol. 33.
. . . the primary issue of the above doctrine is in reference to the symbiotic nexus of the debt “CREATED UNDER HJR-192″ and the necessity of two parties (The American people sponsoring the credit and being in joint venture with government the debtor) as lying within the same operative facts (which is what requires that the public debt be discharged dollar for dollar.) This sets up a self executing dynamic that must and does arise out of NECESSITY in our quasi relationship with THE FED AS THE FED HAS AN OBLIGATION TO EACH OF US INDIVIDUALLY,(Emphasis on the Individual Account) AND THAT OBLIGATION IS THAT EACH OF US ARE A PRE-PAID PRINCIPAL TO OFFER CREDIT TO THE TREASURY AND THEREBY, COLLATERALIZE THE FED TO DO BUSINESS AS THE DEBTOR ENTITY IT IS DESIGNED TO BE. THEREBY . . . WE COME WITHIN THE same set of operative facts UNDER HJR-192 as the (OR ANY) initial claim i.e. offer or claim initiated AND THEREBY . . . . THAT CLAIM OR OFFER instantly activates additional (PRE-PAID) legal rights otherwise dormant in the (alleged) debtor (taxpayer/transmitting utility) or defendant in possession through “its” attorney in fact or authorized representative, being the natural person. (Who by his or her nature is always within their own court of paramount or natural right) The term “same set of operative facts” identifies the necessity of both side of the account equaling ZERO. (Keep in mind, that this is all about the necessity re the remedy and/or relief through the bankruptcy and thererby re-organization process to avoid the imposition of a condition of involuntary bankruptcy/servitude or peonage upon each and every natural person.)
The justification for the defensive use of recoupment in bankruptcy is that there is no independent basis for a “debt,” and therefore there is no “claim” against estate property. Harmon, 188 B.R. at 425; § 101(5) (claim is a “right to payment” or “right to an equitable remedy”); § 101(12) (“‘debt’ means liability on a claim”). Since recoupment is neither a claim nor a debt, it is unaffected by either the automatic stay or the debtor’s discharge. Id.; In Re:TLC Hospitals, 224 F.3d at 1011; Newbery Corp. v. Fireman’s Fund Ins., 95 F.3d at 1399-1400; Mercy Hosp. of Watertown v. New York State Dept. of Social Servs., 171 B.R. 490, 494-95 (N.D.N.Y. 1994);§ 524.
In recoupment, the respective claims may arise either before or after the commencement of the bankruptcy case, but they must arise out of the same transaction. Newbery, 95 F.3d at 1399. The creditor is allowed “to assert that certain mutual claims extinguish one another . . . in spite of the fact that they could not be ‘set-off’ under 11 U.S.C. § 553.” Lee v. Schweirker, 739 F.2d 870, 875 (3rd Cir. 1984).
The “same transaction” requirement essentially distinguishes recoupment from “set-off” or “off-set,” a similar equitable doctrine of debt adjustment, governed by § 553, which requires the existence of mutual, prepetition debts. Id. Therefore, if Aetna is not entitled to recoupment, the debtor’s bankruptcy discharge would prevent an off-set of Aetna’s discharged prepetition claim against the debtor against its post-petition obligation to the debtor. Davidovich v. Welton,(In re Davidovich), 901 F.2d 1533, 1539 & n. 4 (10th Cir. 1990) (citing Johnson v. Rutherford Hosp. (In re Johnson), 13 B.R. 185, 189 (Bankr. M.D. Tenn. 1981)).
In this appeal, Aetna argues that recovery of the debtor’s LTD overpayment falls within the common law doctrine of equitable recoupment because the pre-petition overpayment arose out of the same transaction as the debtor’s claim for post-petition LTD benefits. In the Ninth Circuit, in order to determine if two claims arose from the “same transaction,” we must apply the “logical relationship” test. TLC Hosps., 224 F.3d at 1012; Newbery, 95 F.3d at 1403.
A. Logical Relationship Test
Historically, both recoupment and set-off functioned as equitable rules of joinder, enabling parties to litigate in one proceeding claims that would otherwise have been pursued separately. Lee, 739 F.2d at 875 & n. 5; 6 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Fed. Prac. & Proc., Civ. 2d
§ 1401 (West 1990). Recoupment is the common law precursor of the compulsory counterclaim, whereas setoff is the precursor of the permissive counterclaim. Id.
The common-law claim for recoupment is analogous to a “compulsory counterclaim interposed solely to defeat or diminish plaintiff’s recovery.” 6 Wright et al., supra, § 1409 at 50. The “logical relationship test” is applied under Fed. R. Civ. P. 13(a) to determine a compulsory counterclaim, i.e., whether the claim “arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim.” Fed. R. Bankr. P. 7013/Fed. R. Civ. P. 13(a); Schulman v. State of California, (In re Lazar), 237 F.3d 967, 979 (9th Cir. 2001).
A logical relationship exists when the counterclaim arises from the same aggregate set of operative facts as the initial claim, in that the same operative facts serve as the basis of both claims or the aggregate core of facts upon which the claim rests activates additional legal rights otherwise dormant in the defendant.
Pinkstaff v. United States, (In re Pinkstaff)974 F.2d 113, 115 (9th Cir. 1992) (citation omitted).
In applying this standard, “courts have permitted a variety of obligations to be recouped against each other, requiring only that the obligations be sufficiently interconnected so that it would be unjust to insist that one party fulfill its obligation without requiring the same of the other party.” 5 Collier, supra, ¶ 553.10.
Under the “logical relationship” test, the word “transaction” is given a liberal and flexible construction. See Newbery, 95 F.3d at 1402 (citing Moore v. New York Cotton Exchange, 270 U.S. 593, 610 (1926) and Albright v. Gates, , 362 F.2d 928, 929 (9th Cir. 1966)); United States v. Bulson, (In re Bulson), 117 B.R. 537, 541 (9th Cir. BAP 1990), aff’d, 974 F.2d 1341 (9th Cir. 1992). The Supreme Court has opined: “‘[t]ransaction’ is a word of flexible meaning. It may comprehend a series of many occurrences, depending not so much upon the immediateness of their connection as upon their logical relationship.” Moore, 270 U.S. at 610.
In addition, the term “same aggregate set of operative facts” does not mean that there must be identical facts, “since the facts relied upon by the plaintiff rarely, if ever, are, in all particulars, the same as those constituting the defendant’s counterclaim.” Id.; Albright, 362 F.2d at 929 (“Two bundles of facts seldom are identical for comparing ‘transactions,’ and so close judgments must be made from time to time.”)
By comparison, some other circuit courts do not use the “logical relationship” test. They believe a narrow interpretation of the “same transaction” requirement should be used in the bankruptcy context. For example, the Third Circuit holds that “a mere logical relationship,” i.e., involving “the same two parties . . . and a similar subject matter, “is not enough” to warrant recoupment in the bankruptcy context. University Medical Center v. Sullivan, (In re University Medical Center), 973 F.2d 1065, 1081 (3rd Cir. 1992) (withholding of Medicare payments in one year to adjust for overpayments in another year was not the “same transaction”). It applied a “circumscribed” definition of “transaction,” which requires that both claims arise out of the “identical transaction,” or out of a “single integrated transaction, so that it would be inequitable for the debtor to enjoy the benefits of that transaction without also meeting its obligations.” Id. at 1080-81. Accord, Malinowski v. N.Y. State Department of Labor,(In re Malinowski), 156 F.3d 131, 133 (2nd Cir. 1998) (holding that, in bankruptcy, “transaction” is given a more restricted definition than in the context of compulsory counterclaims under the rules of civil procedure). That approach has been expressly rejected by the Ninth Circuit, and we must follow the Ninth Circuit definition. See Newbery, 95 F.3d at 1402; TLC Hosps., 224 F.3d at 1013.
Under either standard, however, courts evaluate the equities of the case, the main difference between them being the “degree of interconnectedness required with respect to the relevant obligations.” 5 Collier, supra, ¶ 553.10 at 553-104.
However, when a governmental unit formally invokes the jurisdiction of the bankruptcy court by filing a proof of claim, government exposure to counterclaim liability exists under 11 USC 106(a) [In re Pinkstaff, 974 F2d 113 (CA9 1992); see United States v. Nordic Village Inc., 503 US 30— [112 SCt 1011] (1992)]. Under Pinkstaff, the court applies a so-called “logical relationship” test. For purposes of 106(a), a logical relationship exists when the counterclaim arises from the same set of operative facts as the initial claim in that the same operative facts serve as the basis for both claims or the aggregate core of facts upon which the claim rests activates additional legal rights otherwise dormant in the defendant.
So . . . with the above in mind . . . when government makes the natural person an offer (presentment) to respond with a line of credit to the Treasury for some federal project and thereby related monitizing of said credit request made by the principal for acceptance for value and return to the offerer the rule is (the officer or agent of the debtor in possession of all property interests in America being the United States Inc. is the party asking for “Funding”) Upon acceptance of said offer in joint venture, there is at that point no controversy as the original offer has been honored and returned for value and that accounting is brought to zero. If however, the party that made the offer dishonors the acceptance and attempts to mislead the principal re said principals specific performance of having accepted and returned for the express purpose to honor the aforesaid request, but the offering agent’s purpose is to gain unjust enrichment re the transaction and access to the principals exemption to defer the tax on that request and at the principals personal expense . . . this is when the same set of operative facts are self executing and counterclaim becomes operative against the offering officer or agent personally under operation of law and gives cause for fraud to exist as against said officer and his or her complicit parties.