June 21, 2008
Supreme Court Rules on Stamp Tax: In re Piccadilly
Florida Dept of Revenue v. Piccadilly Cafeterias, Inc., --- U.S. ---, 2008 WL 2404077 (2008)
Issue: Does a statutory exemption from a state stamp tax for a sale “under a plan confirmed under section 1129” apply to sales before the plan is confirmed where the sale was necessary and integral to the plan that was ultimately confirmed?
Held: No, there is no ambiguity in the statute.
Justice Clarence Thomas for 7-2 court, Breyer dissented with Stevens joining
The debtor filed chapter 11 in 2003 and subsequently moved the Bankruptcy Court for permission to sell substantially all of its assets. “The Bankruptcy Court conducted an auction in which the winning bidder agreed to purchase [the debtor’s] assets for $80 million.” Subsequently the Bankruptcy Court ruled “that the transfer of assets was exempt from stamp taxes under §1146(a).”
Section 1146(a), entitled “Special tax provisions,” provides:
“The issuance, transfer, or exchange of a security, or the making or delivery of an instrument of transfer under a plan confirmed under section 1129 of this title, may not be taxed under any law imposing a stamp tax or similar tax.”
The debtor contended that Section 1146(a) “extends to preconfirmation transfers as long as they are made in accordance with a plan that is eventually confirmed.” About seven months after the sale the Bankruptcy Court confirmed the debtor’s chapter 11 Plan. The Florida Department of Revenue objected to confirmation because the plan did not propose to pay the stamp tax of $39,200. The Bankruptcy Court “reason[ed] that the sale of substantially all Piccadilly’s assets was a transfer “‘under’ ” its confirmed plan because the sale was necessary to consummate the plan.” The District Court and the Court of Appeals affirmed. The Court of Appeals said that “a remedial statute such as the Bankruptcy Code should be liberally construed.”
The Supreme Court reversed.
“The asset transfer here can hardly be said to have been consummated ‘in accordance with’ any confirmed plan because, as of the closing date, Piccadilly had not even submitted its plan to the Bankruptcy Court for confirmation. Piccadilly’s asset sale was thus not conducted ‘in accordance with’ any plan confirmed under Chapter 11. Rather, it was conducted ‘in accordance with’ the procedures set forth in Chapter 3—specifically, §363(b)(1). To read the statute as Piccadilly proposes would make §1146(a)’s exemption turn on whether a debtor-in-possession’s actions are consistent with a legal instrument that does not exist—and indeed may not even be conceived of—at the time of the sale. Reading §1146(a) in context with other relevant Code provisions, we find nothing
justifying such a curious interpretation of what is a straightforward exemption.”
“If the statutory context suggests anything, it is that §1146(a) is inapplicable to preconfirmation transfers. We find it informative that Congress placed §1146(a) in a subchapter entitled, ‘POSTCONFIRMATION MATTERS.’ To be sure, a subchapter heading cannot substitute for the operative text of the statute. Nonetheless, statutory titles and section headings ‘are tools available for the resolution of a doubt about the meaning of a statute.’ The placement of §1146(a) within a subchapter expressly limited to postconfirmation matters undermines Piccadilly’s view that §1146(a) covers preconfirmation transfers.”
Even if the language were ambiguous, courts should “‘proceed carefully when asked to recognize an exemption from state taxation that Congress has not clearly expressed.’” And Florida’s argument that if an exemption is allowed, the state would have to monitor the case to see if a plan is ever confirmed, is well taken.
The debtor argued that it makes no sense to exclude a sale from taxation at a particular point in time while not excluding a transfer which takes place two months earlier. “[W]e see no absurdity in reading §1146(a) as setting forth a simple, bright-line rule instead of the complex, after-the-fact inquiry Piccadilly envisions.”
In his dissent, Breyer says “Linguistically speaking, it is no more difficult to apply the words ‘plan confirmed’ to instances in which the ‘plan’ subsequently is ‘confirmed’ than to restrict their application to instances in which the ‘plan’ already has been ‘confirmed.’ “[I]f Congress thought the time of confirmation mattered, why did it not say so expressly as it has done elsewhere in the Code?” “The statute’s purpose is apparent on its face. It seeks to further Chapter 11’s basic objectives: (1) ‘preserving going concerns’ and (2) ‘maximizing property available to satisfy creditors.’” “From the perspective of these purposes, it makes no difference whether a transfer takes place before or after the plan is confirmed. In both instances the exemption puts in the hands of the creditors or the estate money that would otherwise go to the State in the form of a stamp tax.”
June 20, 2008
Further Thoughts on Gay Couple Bankruptcy Filing
WOW, Jon. I love the internet!
So, if my client's spouse, as allowed under California law, makes $500K a year, when my unemployed debtor files a chapter 7, 1 U.S.C. s 7 says I don't have to list the "spouse"'s income as long as the "spouse" is the same sex. I hope I get those exact facts one day!
Mental Gymnastics for thought on this issue: When the Chapter 7 trustee asks at the 341(a), "are you married", do I object for uncertainty? I guess the answer is that he is married, but just doesn't have a "spouse" under Federal Law!
Section 101(10A)(B) requires the debtor to include in CMI, payments from any source made on a regular basis for the household expenses of the debtor. Maybe the catch is there.
Anyway, thanks Jon. You definitely answered the first question I had. My current petition will be filed, based on 1 U.S.C. s 7, as a "single individual." not "individual-married," if the client gets married before I file.
Editor's comment. Is property acquired during the "marriage" community property? I.e., can the trustee seize the non-filing spouse's interest in the property? Is the non-filing spouse's future income protected by the community property discharge? A similar problem was dealt with in :
Rabin v. Schoenmann (In re Rabin; In re Johnson) 359 B.R. 242 (9th Cir BAP, December, 2006)
Issue: Must a gay couple, registered under the California Domestic Partnership Registry, share or split the homestead exemption?
June 19, 2008
Northern District of Texas Bench/Bar Conference
This conference was held in Dallas on June 13, 2008. There are some really good materials, especially for the new bankruptcy lawyer or law student, on the Dallas Bar Assn website here.
Joint Chapter 7 Bankruptcy for Gay Couple?
This is a post to a consumer group list serve by a good friend of mine and a great lawyer in Long Beach, CA.
I am preparing a Chapter 7 for a client of no particular significance until this came up today. The client intends, this week, to get married because the California Supreme Court says he has a right to, a recent development. If he gets married in a union recognized by the State of California as valid, but decidely not recognized by any federal courts, to my knowledge, do I file it as a an "individual married" case? Better yet, do I include his new spouse's income when calculating the means test? That may actually be a problem, as the spouse makes pretty decent money. I haven't yet run the numbers to see if it will actually make a difference.
In reality, I'm going to ask my client to let me get his case on file this week before he gets married, to avoid all of this in this case. But I am certain that this exact issue is going to come up, and soon,
and would love to hear any input the group has.
For what its worth, section 101 does not define "spouse" and niether does 302. I'm guessing spouse means spouse under state law, and you go with that, "for better or worse", excuse the pun.
Jeffrey B. Smith
June 18, 2008
Enron is distributing $4 billion to unsecured creditors which brings the total distributions to $20 billion under the Plan of Reorganization or about 50% of all claims according to an Enron press release which you can access here.
June 17, 2008
Arizona Bankruptcy Court Newsletter
Judge Alex Kozinski - Support from his Wife
I have never met Alex Kozinski or argued before him. But I have met Marcy Tiffany. She was the US Trustee in Los Angeles for a number of years. She has written a letter defending her husband's conduct and excoriating the conduct of the LA Times. The letter can be accessed here.
I hope Kozinski gets through this. He is a breath of fresh air in my mind, a brilliant scholar and not afraid to "tell it like it is." I'm afraid for him though. He is a public servant, subject to the highest standards, and there are a lot of blogs, newspapers, news shows. Something has to fill all that space.
June 16, 2008
Chapter 13s - the Real World
I had lunch today with one of the chapter 13 trustees in Los Angeles. She had 94 matters this morning on the chapter 13 confirmation calendar. The whole morning resulted in 22 plan confirmations.
She told me that 57% of the chapter 13 cases filed and assigned to her last month were pro per cases. These cases have little chance of surviving through confirmation. In fact, the majority of the pro per cases do not even file the remainder of the schedules, plan etc after the case is started, nor do they appear to be examined at the 341 meeting of creditors, nor make any of the plan payments. They are simply trying to buy a few more weeks or months before they have to move. The administrative costs, fiscal and mental are huge.
The 94 matters today were people who have filed all the schedules, appeared at the meeting of creditors and otherwise generally complied with the chapter 13 rules and requirements. The failure to get plan confirmation is often due to the failure of the debtor to make the chapter 13 plan payments to date or the regular mortgage or vehicle payments.
June 15, 2008
From the Insolvency Law Committee of the California Bar Association
June 14, 2008
Dear Insolvency Law Committee Constituency List Members:
The American Law Institute and the National Conference of Commissioners on Uniform State Laws have formed a Joint Review Committee to identify specific provisions of Article 9 that may need revision. The UCC Committee of the Business Law Section is soliciting practitioner comments as to those provisions of Article 9 that may be candidates for revision. Please feel free to provide your input to Wansun Song, Co-Chair of the UCC Committee, at [email protected].
Thank you for your continued support of the Committee.
Donna T. Parkinson
Insolvency Law Committee, Chair