BACKGROUND
Appellee LTV Steel Company, Inc. (“LTV Steel”) and its predecessor in interest have, at various times, owned and operated a number of coal mines. As a coal mine operator, LTV Steel was responsible under the Federal Coal Mine Health and Safety Act of 1969, 30 U.S.C. §§ 901-945, for the payment of black lung disability benefits to mine employ
The Act requires employers covered by its provisions either to self-insure or to obtain outside insurance to cover their black lung obligations. See 30 U.S.C. § 933. A mine operator choosing to self-insure must maintain a surety bond in favor of the United States, guaranteeing that if the mine operator for any reason defaults on its payments, the company issuing the bond will pay those benefits up to the value of the bond. The Act further provides that the Department of Labor (DOL) will assume the responsibility for paying black lung benefits when the surety bond is exhausted. This responsibility, however, gives the government the right to get back from the mine operator whatever payments it has made. 26 U.S.C. § 9501(d)(1); 30 U.S.C. § 934(b)(1).
LTV Steel’s predecessor in interest chose to self-insure, and in 1983, appellant Aetna Casualty & Surety Co. (“Aetna”) issued a $5.5 million bond on its behalf. In 1985, LTV Steel was substituted as principal on the bond.
On January 17, 1986, the LTV Corporation and its affiliates (“the LTV Corporation”), filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 101-1330. As required by the Bankruptcy Code, LTV Steel stopped paying black lung benefits. For several months, the DOL paid the benefits, and soon thereafter Aetna began paying under its bond. When Aetna had paid out the $5.5 million provided by the bond, the DOL resumed making the payments.
Throughout the course of the LTV Corporation’s bankruptcy proceedings, Aetna has tried to get back the funds it paid on the bond covering part of LTV Steel’s black lung liabilities. The insurance company early recognized that its most likely source of recovery lay in its right to be subrogated to any claim the DOL might have to set off its black lung payments against other moneys, such as tax refunds, that the government owed to LTV Steel. In 1987, Aetna filed a proof of claim on behalf of itself (as a subrogee to the DOL) and the DOL for all amounts that Aetna and the DOL had been obligated to pay on LTV Steel’s account. The DOL also filed a proof of claim with respect to its own black lung payments.
At a certain point in the bankruptcy proceedings, the DOL and LTV Steel entered into a settlement agreement that fixed the government’s claims for repayment of the black lung benefits at $23.6 million. Aetna objected to the settlement on the grounds that it risked extinguishing the insurance company’s right to be repaid, since that right was derived from Aetna’s position as a subro-gee to the DOL’s right to reimbursement. Both the bankruptcy court and the district court approved the settlement over Aetna’s objections. In re Chateaugay Corp., No. 92-9278A (Bankr.S.D.N.Y. Oct. 27, 1992) (unpublished order), aff'd, In re Chateaugay Corp., No. 92 Civ. 8894(KC) (S.D.N.Y. June 28, 1993) (unpublished order). We affirmed, but expressly noted that the settlement could have no adverse effect on Aetna’s rights or claims. Chateaugay Corp. v. U.S. Dep’t of Labor,
A further plot twist was added by the entry of another government agency — the IRS — onto the scene. Shortly after the LTV Corporation had filed for bankruptcy, the IRS revoked the minimum funding waivers that it had granted to certain LTV Steel-sponsored pension plans. That revocation caused LTV Steel to incur significant liabilities for excise taxes. The IRS filed proofs of claims in the bankruptcy proceedings for these unpaid excise taxes. LTV Steel countered by suing the IRS to expunge or disallow these claims. In the alternative, LTV Steel sought to subordinate the IRS’s claims to all general unsecured claims. The bankruptcy court refused to disallow the claims, but did subordinate them. Both the IRS and LTV Steel appealed this decision, and the district court reversed. It expunged the tax claims for 1984, 1985, and 1986 — all of which it classified as post-petition claims. See LTV Corp. v. Internal Revenue Service (In re Chateaugay Corp.),
On May 14, 1993, Aetna received a copy of this “Application for Approval of the Closing Agreement between the LTV Corporation and its Subsidiaries and the Commissioner of Internal Revenue.” On reviewing the application, Aetna learned for the first time that the government owed a $5.3 million tax refund to LTV Steel and its affiliates. The insurance company immediately filed an emergency motion, seeking to prohibit the LTV Corporation from using $4.2 million of the refund as part of its settlement with the IRS, or alternatively to condition use of the refund on the provision of adequate protection for Aetna’s interest.
The Bankruptcy Code requires the bankruptcy court, when requested by an entity that has an interest in property proposed to be used by the debtor, to prohibit such use, or to condition it on the provision of “adequate protection” — which means essentially to provide payments up to the value of the interest. 11 U.S.C. §§ 361, 363(e). But on reviewing Aetna’s motion, the bankruptcy court determined that adequate protection was not required in order for the LTV Corporation to use the $4.2 million as part of its settlement with the IRS; Aetna, the court held, had no interest in the refund.
The court found that the DOL had failed to comply with the federal tax intercept statute, 26 U.S.C. § 6302(d) and 31 U.S.C. § 3720A, and that absent compliance with that statute, the DOL had no right to the refund. Since Aetna’s right was subrogated to that of the DOL, Aetna likewise could claim no interest in the money.
Having reached this conclusion, the bankruptcy court approved the settlement between the LTV Corporation and the IRS, and, at the same time, confirmed LTV’s Second Modified Joint Plan of Reorganization. Aetna moved in the bankruptcy court for a stay pending appeal, which was denied. We denied a similar motion. In re Chateaugay Corp., No. 93-5048(L) (2d Cir. June 22, 1993).
Aetna then appealed the bankruptcy court’s decision to the district court. The district court first addressed LTV Steel’s argument that Aetna’s appeal should be dismissed as moot because the plan of reorganization had been substantially consummated. The district court found that the doctrine of equitable mootness in bankruptcy proceedings — which “centers on the important public policy favoring orderly reorganization and settlement of debtor estates by affording finality to the judgments of the bankruptcy court,” Rochman v. Northeast Utilities Service Group (In re Public Service Co. of New Hampshire),
As to the merits of Aetna’s claims, however, the district court agreed with the bankruptcy court that the DOL had no interest in the tax refund to which Aetna could be sub-rogated. Like the bankruptcy court, the district court found that the DOL could only have a right to the tax refund if it complied with the tax intercept statute, 26 U.S.C. § 6302(d) and 31 U.S.C. § 3720A. This statute, the court found, was the exclusive manner in which federal agencies could obtain the right to set off non-tax debts against tax refunds. The district court rejected Aetna’s argument that a common law right of setoff existed apart from, and undisturbed by, the tax intercept statute, and that by this common law right the DOL could offset the black lung liabilities against a tax refund. Since it was undisputed that DOL had not complied with the tax intercept statute, the district court affirmed the bankruptcy court ruling.
Aetna appealed from this decision. We find that the district court erred in its conclusion that the DOL possessed no common law right of setoff that would provide the government — and Aetna as its subrogee — with an interest in the tax refund. Accordingly we reverse the judgment of the district court as to the existence of Aetna’s interest in the tax refund and remand the case to that court with instructions to remand to the bankruptcy court for a valuation of that interest.
DISCUSSION
A Mootness
LTV Steel here renews its claim that Aet-na’s appeal should be dismissed under the doctrine of equitable mootness. As we noted before, the district court — applying the factors we enumerated in Frito-Lay, Inc. v. LTV Steel Co., Inc. (In re Chateaugay Corp.),
B. DOL’s Waiver of its Setoff Right
LTV Steel next argues that even if we were to conclude that the DOL had a setoff right to which Aetna could be subro-gated, the DOL waived that right by failing to assert it in its proof of claim. We agree that since Aetna’s interest in the tax refund is derived from its position as subrogee to the DOL, if the DOL waived its right of setoff then Aetna would have no interest in the refund. We are, however, convinced that the DOL proof of claim was sufficient to preserve its right.
The DOL’s proof of claim stated: “This claim is not subject to any setoff or counterclaim currently known by this Federal agency. This claim is subject to the United States’s right to withhold subject to offset amounts due from another Federal entity....” LTV Steel argues that the second sentence of this statement is not sufficiently specific to preserve the right to setoff the black lung liability against the tax refund, and that if such a right is not asserted in a proof of claim, it must be treated as waived.
We do not need to decide which of these positions is correct because we conclude that the DOL’s statement that its claim was “subject to offset amounts due from another Federal agency” was sufficiently specific to preserve that right, even under the most stringent standard.
C. The Setoff Right
The district court found that Aetna had no interest in LTV Steel’s tax refund because the DOL had not complied with the tax intercept statute in asserting its right to set off LTV Steel’s black lung liabilities against the tax refund. Aetna counters that—quite apart from the tax intercept statute—the DOL could avail itself of the government’s longstanding common law right to set off debts owed to a citizen against that citizen’s liabilities to the government. It further argues that this right was preserved in bankruptcy by 11 U.S.C. § 553.
The tax intercept program was enacted as part of the Deficit Reduction Act of 1984 and includes two separately codified provisions, 26 U.S.C. § 6402(d)
It is undisputed that the DOL did not register with the IRS as a participant in the tax intercept program. In fact, even if the DOL had opted into the program, the statute would not have applied to the particular refund at issue here. 31 U.S.C. § 3720A(g) provides that “[i]n the case of refunds of business associations, this section shall apply only to refunds payable on or after January 31, 1995.” The tax refund due to LTV Steel was due well before January 31, 1995. Thus, even if the DOL had complied with the Treasury regulations under the tax intercept program, LTV Steel’s refund would have been exempt from setoff under that scheme.
The question we must address then, is not whether the statute provides Aetna with an interest in the tax refund — it does not — but whether there is any method, other than compliance with the statute, through which a government agency can set off, against a tax refund, moneys that are owed to it.
The district court, in concluding that no other method for setoff was available to the government, relied substantially on one part of the legislative history of the tax intercept program. The conference committee report on the statute states unequivocally that “[p]resent law does not provide authority for the IRS to offset tax refunds against nontax debts owed to Federal agencies.” Joint Explanatory Statement of the Committee of Conference, H.R.Conf.Rep. No. 861, 98th Cong., 2d Sess. 757, 1413 (1984), reprinted in 1984 U.S.C.C.A.N. 697, 1445, 2101; see also Donahue v. United States,
But this statement is flatly contradicted by numerous early cases in which the government did set off tax refunds against nontax liabilities. See, e.g., Cherry Cotton Mills v. United States,
We must consider, however, whether Congress intended the tax intercept statute to preempt all preexisting common law rights of setoff. Certainly, as the district court noted, if the statute is not intended to be the exclusive means of setoff, agencies might persistently ignore its onerous compliance obligations and simply assert the common law right instead. As to tax refunds that are covered by the statute, therefore, it seems quite plausible that compliance with the statutory scheme was meant by Congress to be a necessary prerequisite to setoff. But that is not the situation with which we are confronted here, and so we do not decide that question. ■
The LTV Steel refund is expressly exempted from the statute’s application by the effective date provision of 31 U.S.C. § 3720A(g). And there is nothing, either in the language of the statute or in its legislative history, that would lead us to believe that Congress meant the statute to abrogate common law rights of setoff against refunds for which the intercept law provides no statutory alternative. It is a longstanding principle that “[sjtatutes which invade the common law ... are to be read with a presumption favoring the retention of long-established and familiar principles, except when a statutory purpose to the contrary is evident,” Isbrandtsen Co. v. Johnson,
Accordingly, we conclude that the DOL possesses a common law right to setoff its nontax debts against tax refunds. And we further hold that the tax intercept statute does not preempt the application of that common law right in situations as to which the statute by its own terms does not apply.
LTV Steel nevertheless argues that, even assuming that the DOL has a right of setoff, Aetna cannot benefit from that right. LTV Steel contends that Aetna cannot, as a subrogee to the DOL’s right under 11 U.S.C. § 509(c), assert the DOL’s rights to any payment from LTV Steel until the claim has been paid in full to the DOL. And, since the DOL has settled with LTV Steel, no such full payment will ever be made.
Section 509(c) does subordinate a sub-rogee’s claims until payment in full has been made to the principal creditor. But we cannot accept LTV Steel’s argument that the
D. The Government’s Argument on Appeal
In its brief to this Court, the government—essentially agreeing with our finding that a common law right of setoff exists— “concluded that the basis upon which the district court reached its decision in this case ... was incorrect.” Nonetheless, the government urges us to affirm the decision of the district court on an alternative basis. See Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A.,
The government argues that Aetna could not have had a properly interest in the $4.2 million tax “refund” because LTV Steel never had such an interest. A taxpayer, the government contends, has no interest in an overpayment to the IRS until the IRS has credited the overpayment against the taxpayer’s liabilities and has determined that a refund is due. In support of this argument, the government points to 26 U.S.C. § 6402(a), which provides that “[i]n the case of any overpayment, the Secretary [of the Treasury], within the applicable period of limitations, may credit the amount of such overpayment ... against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall ... refund any balance to such person.”
Rather than being a setoff provision, this statute, according to the government, “governs the manner in which the IRS calculates whether taxpayers are due any refund of federal taxes.” Only after that internal IRS accounting has occurred does the excess of “overpayment” above “underpayment” become a “refund” in which the taxpayer has a property interest. In this ease, the government argues, LTV Steel’s tax liabilities were significantly higher than the company’s tax overpayments. Accordingly, LTV Steel never had a property interest in those overpay-ments. It follows that neither the DOL nor Aetna could have offset the black lung liabilities against the $4.2 million.
The government’s argument ignores the fact that all instances of offsetting involve exactly the process that the IRS here describes as merely an “accounting” procedure. As the Supreme Court has noted, the principle of allowing setoff is intended to avoid “the absurdity of making A pay B when B owes A.” Studley v. Boylston Nat’l Bank,
By arguing that the “accounting” procedure under 6402(a) is something other than an ordinary right of setoff, the government in essence asks us to find that the bankruptcy laws do not apply to the IRS. This we cannot do. For the Supreme Court has quite clearly held that “[n]othing in the Bankruptcy Code or its legislative history indicates that Congress intended a special exception for the tax collector.” United
It is true that some courts have accepted the argument that crediting tax overpay-ments against tax liabilities is not a “setoff’ within the meaning of § 553 of the Bankruptcy Code. See, e.g., Security Pac. Nat’l Bank v. United States (In re Siebert Trailers, Inc.),
We are convinced that, just as 26 U.S.C. § 6402(d), the tax intercept statute, gives federal agencies other than the IRS a right of setoff against tax overpayments, so § 6402(a) grants that right to the IRS itself. When the LTV Corporation filed for bankruptcy, all of its creditors were prohibited (by operation of bankruptcy’s automatic stay provision, 11 U.S.C.. § 362(a)(7)) from offsetting any debt owed to them without permission of the bankruptcy court, in accordance with the Code. See 4 Collier on Bankruptcy, supra, ¶ 553.05[2], at 553-35. In this re-spect, the IRS is treated like any other creditor.
A conclusion that the IRS cannot conduct its setoff procedures without the permission of the bankruptcy court, however, does not determine whether Aetna’s claim to LTV Steel’s $4.2 million tax overpayment has precedence over the IRS’s claim. In fact, Treasury regulations suggest that, as a general matter, the DOL (and, hence, Aetna) has a lower-priority claim to any tax overpayment than the IRS has. 26 C.F.R. § 301.6402-6(g)(1) provides that before another government agency has a right to a setoff against a tax overpayment, that overpayment “shall be reduced first by the amount of an outstanding liability for any tax under section 6402(a)....”
This provision, giving priority to IRS setoffs over other government setoffs, cannot, however, thwart the requirements of 11 U.S.C. § 553, that to be preserved in bankruptcy a setoff must involve pre-petition mutual debts. The regulation suggests, and powerfully, that if LTV Steel’s excise tax liabilities were pre-petition claims, the IRS’s claim would take precedence over the claims of the DOL, and hence over Aetna’s claims. But it cannot serve to defeat Aetna’s pre-petition claims if LTV Steel’s tax liabilities arose post-petition.
Before the IRS and the LTV Corporation agreed to settle, the district court, in a thorough and well-reasoned opinion, concluded that the IRS’s excise tax claims were post-petition claims. In re Chateaugay,
Even though we are not bound by Judge Conboy’s opinion, we nevertheless agree with its reasoning, and we adopt its conclusions as our own. Since LTV Steel’s excise tax liabil-
Finally, the government argues that because the LTV Corporation filed a common tax return for itself and its subsidiaries (including LTV Steel), the tax liabilities of its other subsidiaries can be treated as LTV Steel’s liabilities for the purposes of § 553. Moreover, the government points out that these other tax liabilities involved in the settlement (amounting to over $4.2 million) were clearly pre-petition. Setoff of these other taxes would, according to the government, take priority over any claim by the DOL, and would exhaust the refund, leaving nothing for the interagency setoff.
We reject the government’s argument. These other taxes were not owed by LTV Steel, but by different subsidiaries of the LTV Corporation. In 1991, we made clear that when a parent corporation files a return for its subsidiaries, “[t]he common parent acts as an agent on behalf of all the members of the consolidated group for the convenience and protection of [the] IRS only. The corporations retain their separate identities and the property interests of the subsidiaries are not absorbed by the common parent.” Official Comm. of Unsecured Creditors v. PSS S.S. Co. (In re Prudential Lines Inc.),
CONCLUSION
We hold that the DOL possesses a common law right to offset LTV Steel’s black lung liabilities against the company’s tax refund and that Aetna is subrogated to the DOL’s right of setoff. That right is prior to any right the IRS has to offset post-petition tax liabilities against pre-petition tax over-payments. The validity of the settlement between the Internal Revenue Service and LTV is not before us. But we hold that Aetna has a right to adequate protection for the use of its interest in the settlement. In doing so, we emphasize that Aetna’s right to adequate protection is against LTV and it is from LTV rather than the IRS that the moneys to ensure that adequate protection must come. There remains some dispute between LTV Steel and Aetna as to the precise sum owing on Aetna’s $5.5 million bond, given payments that have already been made as part of the bankruptcy proceedings. We therefore reverse the judgment of the district court and remand the dispute to that court with instructions to remand to the bankruptcy court for a determination of the value of Aetna’s interest in the tax refund and for provision of adequate protection for that interest.
Notes
. The settlement between the IRS and the LTV Corporation was independent of the earlier-mentioned settlement between the DOL and LTV Steel.
. The settlement also provided that the parties would ask the district court to vacate as moot its judgment ordering the IRS's pension excise taxes expunged. This request was made and granted. LTV Corp. v. Internal Revenue Service (In re Chateaugay Corp.),
.Of the $5.3 million total refund, Aetna claims an interest in only the $4.2 million that was owed to LTV Steel. The remainder of the refund was owed to affiliates of LTV Steel, and Aetna does not argue that the DOL, or Aetna as the DOL’s subrogee, has any claim to that portion of the refund.
. Because we conclude that the DOL proof of claim was sufficiently specific, we also do not address whether the proof of claim filed by Aetna on the government's behalf—a proof of claim that unambiguously stated that the claim was subject to offset against any tax refund—was "rendered a nullity” by the DOL’s filing of its own proof of claim, as LTV argues.
. Section 553(a) of the Bankruptcy Code provides:
Except as otherwise provided ... this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case....
11 U.S.C. § 553(a). This section does not itself provide a right of setoff; it merely preserves setoff rights that exist outside the bankruptcy context. Citizens Bank of Maryland v. Strumpf, - U.S. -, -,
. In its brief before this Court, the government took the position that the district court was incorrect in its holding that the tax intercept statute is the exclusive method for government agencies to offset debts owed them against tax refunds. It did, however, support the district court's decision on other grounds, discussed in Section D of this opinion.
. 26 U.S.C. § 6402(d)(1) provides:
Upon receiving notice from any Federal agency that a named person owes a past-due legally enforceable debt ... to such agency, the Secretary [of the Treasury] shall—(A) reduce the amount of any overpayment payable to such person by the amount of such debt; (B) pay the amount by which such overpayment is*778 reduced ... to such agency; and (C) notify the person making such overpayment that such overpayment has been reduced by an amount necessary to satisfy such debt.
. 31 U.S.C. § 3720A(a) requires Federal agencies to notify the Secretary of the Treasury of any past due debt at least .once each year. 31 U.S.C. § 3720A(b) mandates that an agency planning to take advantage of the statutory setoff procedure:
(1) notifies the person incurring such debt that such agency proposes to take action ...; (2) gives such person at least 60 days to present evidence that all or part of such debt is not past-due or not legally enforceable; (3) considers any evidence presented by such person and determines that an amount of such debt is past due and legally enforceable; (4) satisfies such other conditions as the Secretary may prescribe ...; (5) certifies that reasonable efforts have been made by the agency (pursuant to regulations) to obtain payment of such debt.
. A slightly different temporary version of the regulation, Temp.Treas.Reg. § 301.6402-6T, applies to all refunds payable between December 31, 1985, and April 14, 1992.
. Aetna also argued that the DOL possessed a right of setoff granted by certain other statutory provisions. None of the provisions cited by Aet-na is applicable here. 11 U.S.C. § 106(c) empowers a debtor to assert a setoff right against a governmental agency when that agency has filed proofs of claim in a bankruptcy proceeding. See Merritt Commercial Sav. & Loan, Inc. v. Guinee,
. Since we conclude that Aetna has an interest in the tax refund as a subrogee of the DOL’s right of offset, we do not address Aetna's alternative argument that the insurance company is, itself, directly subrogated to LTV’s right to receive the tax refund.