In Uncategorized on 10/21/2015 at 16:22

If So, Admit It – Or Maybe Not

No opinions or orders today, so all I have is gas.

And that’s to what Judge Laro is reduced, when IRS wants to withdraw its admission concerning gas in Green Gas Delaware Statutory Trust, Methane Bio, LLC, Tax Matters Partner, et al., Docket No. 26965-09, filed 10/21/15.

The Green Gassers wanted IRS to admit that “Landfill gas produced from biomass, also known as methane gas, is a ‘qualified fuel’ for purposes of I.R.C. Sec. 45K.” Order, at p. 2.

And IRS did, but now repents, and wants to modify its admission thus: “…the methane from landfill gas is qualified fuel after the landfill gas has been treated to remove non-methane components and the remaining methane has been made suitable for use as fuel. Denies that landfill gas is the same thing as, or is also known as, methane gas. Denies that landfill gas, in its raw state, is qualified fuel.” Order, at p. 3.

Clearly, precisely what this landfill gas stuff is, or is known as, is one of, if not the only, “sweet spot” in this case.

But once you admit you have gas, how do you get out of the admission?

Judge Laro will tell you, and then, like the late Duke of Windsor, “I am able to say a few words of my own.”

First, Judge Laro: “Rule 90(f) provides that the Court may permit withdrawal or modification of the admission when the presentation of the merits of the case will be subserved thereby, and the party who obtained the admission fails to satisfy the court that the withdrawal or modification will prejudice such party in prosecuting such party’s case or defense on the merits.” Order, at p. 1.

As to presenting the merits on the trial, “(B)ecause the issue of what constitutes qualified fuel for purposes of Section 45K is novel and important to the resolution of the case on the merits, granting respondent’s motion would satisfy the first prong of Rule 90(f) and will subserve the presentation of the merits of the case.” Order, at p. 2.

Now for the prejudice. “The party relying on an admission has the burden of proving that such admission will cause prejudice. Petitioners’ response alleges that petitioners will be prejudiced if the Court grants respondent’s motion because respondent kept changing the theories of what constitutes ‘qualified fuel’ for the purposes of Section 45K in different filings made in the case and because petitioners would have to incur additional expenses in litigating this issue. Pursuant to the order of the Court…the parties are bound by the theories and positions they advance in their respective memoranda of issues. Both parties filed their memoranda of issues…. Under the circumstances, there is no danger that respondent will further change his litigation position or advance new theories. As to the issue of additional expense in litigating the issue, petitioners in their memorandum of issues raise the question of whether methane produced from landfill gas is a ‘qualified fuel’ for purposes of Section 45K. Thus, granting respondent’s motion to modify the admission will not result in additional effort or expense to petitioners and satisfies the second prong of Rule 90(f).” Order, at p. 2. (Citation omitted).

Though I haven’t read the memoranda of issues (they’re not online), I think Judge Laro and IRS pulled a fast one. Of course petitioner mentioned the issue; if it’s the “sweet spot” of the case, and it seems that it is, they had to mention it. But if IRS admitted the issue before the memoranda, then mentioning it and saying IRS agreed takes the issue off the table.

To put it back on the table does prejudice the petitioner.

I’d move to reconsider, if I hadn’t given the game away in my memo.

Anyway, IRS gets to withdraw its admission and put in the aforecited language.

I’m a great fan of the Notice to Admit. While admissions of ultimate facts are rare birds indeed, you might just catch an adversary napping. Quoting myself, “We all learned on Day One of practice, when you serve the answer, simultaneously serve the notice to admit, the notice to produce, the notice to inspect, the demand for a bill of particulars, and deposition notices of all and sundry.” From my blogpost “Don’t Suppose You Can Depose,” 12/2/13.

Takeaway–Don’t be discouraged by the Green Gassers’ loss here; keep the Notice to Admit form handy.



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