In re Cody, Inc.

• Decision Date: 04 August 2003
• Docket Number: Docket No. 02-5047.
• Parties: In re: CODY, INC., Debtor. Cody, Inc., Debtor-Appellant, v. County of Orange and Town of Woodbury, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

338 F.3d 89

In re: CODY, INC., Debtor.

Cody, Inc., Debtor-Appellant, v. County of Orange and Town of Woodbury, Defendants-Appellees.

Docket No. 02-5047.

United States Court of Appeals, Second Circuit.

Argued: March 3, 2003. Supplemental Briefing Completed: May 15, 2003.

Decided: August 4, 2003.

MARY LOU CHATTERTON, New York, N.Y. (Joseph J. Haspel, Goshen, NY, on the brief), for Debtor-Appellant Cody, Inc.

MATTHEW J. NOTHNAGLE, Senior Assistant County Attorney (Catherine M. Bartlett, County Attorney for the County of Orange, on the brief), Goshen, NY, for Defendant-Appellee County of Orange.

DAVID D. HAGSTROM, Van de Water & Van de Water, LLP, Poughkeepsie, NY, for Defendant-Appellee Town of Woodbury.

Before: POOLER and B.D. PARKER, JR., Circuit Judges, and HALL, District Judge.^*

B.D. PARKER, JR., Circuit Judge.

Debtor-appellant Cody, Inc. appeals from a judgment of the United States District Court for the Southern District of New York (Colleen M. McMahon, Judge) affirming a judgment of the Bankruptcy Court (Adlai S. Hardin, Jr., Judge). Cody initiated an adversary proceeding, seeking a determination that certain parcels of real property it owned in the Town of Woodbury and the County of Orange in New York were exempt from taxation in the years 1993-2001. The Bankruptcy Court "abstain[ed] from determining [Cody's] tax liability under 11 U.S.C. § 505(a)(1) and abstain[ed] from and decline[d] jurisdiction under 28 U.S.C. § 1334(c)(1)."¹ (Order Dismissing Adversary Proceeding, Feb. 11, 2002, at 4.) Cody appealed to the District Court. The District Court determined that, under the Rooker-Feldman doctrine,² the Bankruptcy Court lacked jurisdiction over the adversary proceeding with respect to tax year 1994, an issue that the Bankruptcy Court had not reached. The District Court assumed that the Bankruptcy Court had jurisdiction over the remaining tax years and concluded that it had not abused its discretion in abstaining, under either 28 U.S.C. § 1334(c)(1) or 11 U.S.C. § 505(a)(1). The District Court affirmed the decision of the Bankruptcy Court. Cody appealed. We affirm, on jurisdictional grounds, the District Court's dismissal of Cody's claim insofar as it concerns tax years 1994 and 2001 because Cody had contested these tax years before a competent state tribunal before filing its bankruptcy petition. See 11 U.S.C. § 505(a)(2)(A). Because § 1334(d) expressly makes decisions to abstain under § 1334(c) "not reviewable by appeal or otherwise by the court of appeals," we dismiss the appeal insofar as it concerns tax years 1995 and 1998.

BACKGROUND

Since 1994, Cody has owned several parcels of real property in the Town of Woodbury in Orange County. The County has levied real property taxes on these parcels, which Cody has not paid since 1995 and which continue to be due and owing. Cody argues that the parcels are tax exempt because it is a religious corporation and uses the land exclusively for religious and educational purposes. See N.Y. Real Prop. Tax Law § 420-a[1](a) (McKinney 2000).

Cody has litigated the tax-exempt status of its property for the tax years 1994-2001 in a number of different forums. Cody has applied for exemptions from the Town Assessor and filed tax grievance complaints with the Town Board of Assessment Review (the "BAR") for the tax years 1994, 1996, 1997, 2000, and 2001, all of which were denied after a hearing pursuant to New York Real Property Tax Law § 525. Cody filed tax certiorari petitions under Article 7 of the New York Real Property Tax Law in Supreme Court, Orange County, for the tax years 1994 1996, 1997, 1999, and 2000. The 1994 tax certiorari proceeding was dismissed in September 1999 because Cody had failed to file a note of issue within four years of commencing the action. See N.Y. Real Prop. Tax Law § 718[1] (McKinney 2000). The tax certiorari proceedings for 1996, 1997, 1999, and 2000 were still pending when Cody filed a petition under Chapter 11 of the Bankruptcy Code in July 2001.

In November 1997, Cody filed a complaint in the Southern District of New York alleging that the Town Assessor's failure to grant it tax-exempt status violated the First and Fourteenth Amendments. The district court dismissed the complaint pursuant to the Tax Injunction Act, 28 U.S.C. § 1341, because Cody could have obtained review of the Assessor's decision under an adequate state-law procedure. Cody, Inc. v. Town of Woodbury, 8 F.Supp.2d 340, 343 (S.D.N.Y.1998).

In October 2000, the County petitioned in Supreme Court, Orange County, to foreclose on certain parcels for which the taxes were delinquent. Cody answered, asserting that the parcels were exempt from taxation because it was a religious corporation using the land exclusively for religious and educational purposes. The County moved for an order striking Cody's answer and directing foreclosure. At Cody's request, the hearing on the motion was postponed.

Before the hearing date, Cody filed its Chapter 11 petition and commenced an adversary proceeding against the County and the Town seeking "a determination pursuant to 11 U.S.C. § 505(a) of the nature and extent of liens with respect to the Debtor's real property, including real estate taxes assessed against its property." (Compl. ¶ 2.) Cody moved for summary judgment on the basis of its alleged tax-exempt status. The County disputed that the parcels had been used exclusively for tax-exempt purposes, contending that Cody used them to provide loan and check-cashing services and that thousands of dollars generated by the property were paid to Cody's officers. Cross-moving for summary judgment, the Town contended that the BAR's denial of Cody's written grievance complaints for tax years 1994, 1996, 1997, 2000, and 2001 deprived the Bankruptcy Court of jurisdiction under 11 U.S.C. § 505(a)(2) for those years. The Town also sought abstention under (1) the Tax Injunction Act, 28 U.S.C. § 1341, because tax certiorari petitions for 1996, 1997, 1999, and 2000 were pending in New York state court; and (2) 11 U.S.C. § 505(a)(1) because the primary benefit of the adversary proceeding would inure to Cody, whose largest unsecured creditors were insiders, see New Haven Projects Ltd. Liability Co., 225 F.3d at 290.

The Bankruptcy Court declined to decide whether it had jurisdiction over the proceeding, determining that, if it had jurisdiction, it would abstain from exercising it. It then abstained under 11 U.S.C. § 505(a)(1) and 28 U.S.C. § 1334(c)(1) and dismissed the adversary proceeding, concluding that New York law provided procedures for a taxpayer to challenge the imposition of real estate taxes. The court determined that Cody had had ample opportunity to invoke these procedures and had done so in varying degrees, and that the parties' dispute was "of a quintessential state law character." (Order Dismissing Adversary Proceeding, Feb. 11, 2002, at 3.) Cody appealed to the District Court, but only insofar as tax years 1994, 1995, 1998, and 2001 were concerned.³

The District Court held that the Rooker-Feldman doctrine deprived the federal courts of jurisdiction over Cody's claims regarding tax year 1994, for which Cody's state-court tax certiorari proceeding had been dismissed for failure to file a note of issue. The court noted that, if Cody's use of the parcels did not change after 1994, then Cody's claims regarding tax years 1995, 1998, and 2001 may be inextricably intertwined with the judgment in the certiorari proceeding for 1994, depriving the federal courts of jurisdiction over 1995, 1998, and 2001 as well. The court concluded, however, that it could not make such an assessment on the record before it, and proceeded to review the Bankruptcy Court's abstention decision.

The District Court held that the Bankruptcy Court had properly abstained under 28 U.S.C. § 1334(c)(1). The District Court also concluded, in the alternative, that the Bankruptcy Court "had the discretion to abstain under 11 U.S.C. § 505(a)(1)," Cody, Inc. v. County of Orange (In re Cody, Inc.), 281 B.R. 182, 192 (S.D.N.Y.2002), even though the Bankruptcy Court had not relied on that section. Cody appealed.

We conclude that, under 11 U.S.C. § 505(a)(2)(A), the District Court lacked jurisdiction over Cody's claims regarding tax years 1994 and 2001. We therefore affirm the dismissal of Cody's adversary proceeding with respect to those years. We also conclude that, under 28 U.S.C. § 1334(d), we lack appellate jurisdiction to review the Bankruptcy Court's abstention decision. Accordingly, we dismiss the appeal insofar as it concerns the tax years over which the Bankruptcy Court had jurisdiction, 1995 and 1998.

DISCUSSION

I. Standard of Review

"The district court's order affirming the bankruptcy court is subject to plenary review. This court reviews conclusions of law de novo, and findings of fact under a clearly erroneous standard." Tudisco v. United States (In re Tudisco), 183 F.3d 133, 136 (2d Cir.1999) (internal citation and quotation marks omitted); see also Key Mechanical Inc. v. BDC 56 LLC (In re BDC 56 LLC), 330 F.3d 111, 116-17 (2d Cir.2003).

II. Subject Matter Jurisdiction

The District Court was correct to address the jurisdictional issue before reviewing the Bankruptcy Court's abstention decision. As the District Court properly noted, "a court that lacks jurisdiction over a matter cannot `abstain' from deciding that matter." Cody, 281 B.R. at 189. Thus, we turn first to the question of the Bankruptcy Court's jurisdiction over Cody's § 505 claims.

The defendants make two separate jurisdictional arguments. First, the Town and the County argue that, as the District Court determined, the Rooker-Feldman doctrine deprives the federal courts of jurisdiction over Cody's claims regarding tax year 1994 because of the state court's dismissal of the certiorari proceeding that addressed that year. Second, the Town argues that 11 U.S.C. § 505(a)(2)(A) deprives the federal courts of jurisdiction over the tax years 19...