Florida Dep't of Revenue v. Piccadilly Cafeterias, Inc.

• Decision Date: 16 June 2008
• Docket Number: No. 07–312.,07–312.
• Citation: 21 Fla. L. Weekly Fed. S 374,59 Collier Bankr.Cas.2d 1316,50 Bankr.Ct.Dec. 34,2008 Daily Journal D.A.R. 8843,08 Cal. Daily Op. Serv. 7344,554 U.S. 33,76 USLW 4471,128 S.Ct. 2326,171 L.Ed.2d 203
• Parties: FLORIDA DEPARTMENT OF REVENUE, Petitioner, v. PICCADILLY CAFETERIAS, INC.
• Court: U.S. Supreme Court

08 Cal. Daily Op. Serv. 7344

128 S.Ct. 2326

171 L.Ed.2d 203

2008 Daily Journal D.A.R. 8843

21 Fla. L. Weekly Fed. S 374

50 Bankr.Ct.Dec. 34

554 U.S. 33

59 Collier Bankr.Cas.2d 1316

76 USLW 4471

FLORIDA DEPARTMENT OF REVENUE, Petitioner,

v.PICCADILLY CAFETERIAS, INC.

No. 07–312.

Supreme Court of the United States

Argued March 26, 2008.Decided June 16, 2008.

Syllabus ^*

After respondent (Piccadilly) declared bankruptcy under Chapter 11, but before its plan was submitted to the Bankruptcy Court, that court authorized Piccadilly to sell its assets, approved its settlement agreement with creditors, and granted it an exemption under 11 U.S.C. § 1146(a), which provides a stamp-tax exemption for any asset transfer “under a plan confirmed under section 1129.” After the sale, Piccadilly filed its Chapter 11 plan, but before the plan could be confirmed, petitioner Florida Department of Revenue (Florida) objected, arguing that the stamp taxes it had assessed on certain of the transferred assets fell outside § 1146(a)'s exemption because the transfer had not been under a confirmed plan. The court granted Piccadilly summary judgment. The Eleventh Circuit affirmed, holding that § 1146(a)'s exemption applies to preconfirmation transfers necessary to the consummation of a confirmed Chapter 11 plan, provided there is some nexus between such transfers and the plan; that § 1146(a)'s text was ambiguous and should be interpreted consistent with the principle that a remedial statute should be construed liberally; and that this interpretation better accounted for the practicalities of Chapter 11 cases because a debtor may need to transfer assets to induce relevant parties to endorse a proposed plan's confirmation.

Held: Because § 1146(a) affords a stamp-tax exemption only to transfers made pursuant to a Chapter 11 plan that has been confirmed, Piccadilly may not rely on that provision to avoid Florida's stamp taxes. The most natural reading of § 1146(a)'s text, the provision's placement within the Bankruptcy Code, and applicable canons of statutory construction lead to this conclusion. Pp. 2331 – 2339.

(a) Florida's reading of § 1146(a) is the most natural. Contending that the text unambiguously limits stamp-tax exemptions to postconfirmation transfers made under the authority of a confirmed plan, Florida argues that “plan confirmed” denotes a plan confirmed in the past, and that “under” should be read to mean “with the authorization of” or “inferior or subordinate” to its referent, here the confirmed plan, see Ardestani v. INS, 502 U.S. 129, 135, 112 S.Ct. 515, 116 L.Ed.2d 496. Piccadilly counters that the provision does not unambiguously impose a temporal requirement, contending that had Congress intended “plan confirmed” to mean “confirmed plan,” it would have used that language, and that “under” is as easily read to mean “in accordance with.” While both sides present credible interpretations, Florida's is the better one. Congress could have used more precise language and thus removed all ambiguity, but the two readings are not equally plausible. Piccadilly's interpretation places greater strain on the statutory text than Florida's simpler construction. And Piccadilly's emphasis on the distinction between “plan confirmed” and “confirmed plan” is unavailing because § 1146(a) specifies not only that a transfer be “under a plan,” but also that the plan be confirmed pursuant to § 1129. Ultimately this Court need not decide whether § 1146(a) is unambiguous on its face, for, based on the parties' other arguments, any ambiguity must be resolved in Florida's favor. Pp. 2331 – 2333.

(b) Even on the assumption that § 1146(a)'s text is ambiguous, reading it in context with other relevant Code provisions reveals nothing justifying Piccadilly's claims that had Congress intended § 1146(a) to apply exclusively to postconfirmation transfers, it would have made its intent plain with an express temporal limitation, and that “under” should be construed broadly to mean “in accordance with.” If statutory context suggests anything, it is that § 1146(a) is inapplicable to preconfirmation transfers. The provision's placement in a subchapter entitled “POSTCONFIRMATION MATTERS” undermines Piccadilly's view that it extends to preconfirmation transfers. Piccadilly's textual and contextual arguments, even if fully accepted, would establish at most that the statutory language is ambiguous, not that the purported ambiguity should be resolved in Piccadilly's favor. Pp. 2333 – 2336.

(c) The federalism canon articulated in California State Bd. of Equalization v. Sierra Summit, Inc., 490 U.S. 844, 851–852, 109 S.Ct. 2228, 104 L.Ed.2d 910—that courts should “‘proceed carefully when asked to recognize an exemption from state taxation that Congress has not clearly expressed”’—obliges the Court to construe § 1146(a)'s exemption narrowly. Piccadilly's interpretation would require the Court to do exactly what the canon counsels against: recognize an exemption that Congress has not clearly expressed, namely, an exemption for preconfirmation transfers. The various substantive canons on which Piccadilly relies for its interpretation—most notably, that a remedial statute should be construed liberally—are inapposite in this case. Pp. 2336 – 2339.

484 F.3d 1299, reversed and remanded.

THOMAS, J., delivered the opinion of the Court, in which ROBERTS, C.J., and SCALIA, KENNEDY, SOUTER, GINSBURG, and ALITO, JJ., joined. BREYER, J., filed a dissenting opinion, in which STEVENS, J., joined, post, p. 2339.

Christopher J. Meade, Wilmer, Cutler, Pickering, Hale and Dorr LLP, New York, NY, for petitioner.

Edwin S. Kneedler, Office of the Solicitor General, Washington, D.C., for respondent.

Frederick F. Rudzik, Assistant General Counsel, Department of Revenue, Tallahassee, FL, Bill McCollum, Attorney General, Scott D. Makar, Counsel of Record, Solicitor General, Craig D. Feiser, Deputy Solicitor General, State of Florida, Office of the Attorney General, Tallahassee, FL, for petitioner.Paul Steven Singerman, Leslie Gem Cloyd, Berger Singerman, Boca Raton, FL, G. Eric Brunstad, Jr., Counsel of Record, Robert A. Brundage, Rheba Rutkowski, Collin O'Connor Udell, Raquel J. Webster, Alison E. Hickey, Philip B. Janis, Bingham McCutchen LLP, Hartford, Connecticut, for respondent.Justice THOMAS delivered the opinion of the Court.

The Bankruptcy Code provides a stamp-tax exemption for any asset transfer “under a plan confirmed under [Chapter 11]” of the Code. 11 U.S.C. § 1146(a) (2000 ed., Supp. V). Respondent Piccadilly Cafeterias, Inc., was granted an exemption for assets transferred after it had filed for bankruptcy but before its Chapter 11 plan was submitted to, and confirmed by, the Bankruptcy Court. Petitioner, the Florida Department of Revenue, seeks reversal of the decision of the Court of Appeals upholding the exemption for Piccadilly's asset transfer. Because we hold that § 1146(a)'s stamp-tax exemption does not apply to transfers made before a plan is confirmed under Chapter 11, we reverse the judgment below.

I

Piccadilly was founded in 1944 and was one of the Nation's most successful cafeteria chains until it began experiencing financial difficulties in the last decade. On October 29, 2003, Piccadilly declared bankruptcy under Chapter 11 of the Bankruptcy Code, § 1101 et seq. (2000 ed. and Supp. V), and requested court authorization to sell substantially all its assets outside the ordinary course of business pursuant to § 363(b)(1) (2000 ed., Supp. V). Piccadilly prepared to sell its assets as a going concern and sought an exemption from any stamp taxes on the eventual transfer under § 1146(a) of the Code.¹ The Bankruptcy Court conducted an auction in which the winning bidder agreed to purchase Piccadilly's assets for $80 million.

On January 26, 2004, as a precondition to the sale, Piccadilly entered into a global settlement agreement with committees of senior secured noteholders and unsecured creditors. The settlement agreement dictated the priority of distribution of the sale proceeds among Piccadilly's creditors. On February 13, 2004, the Bankruptcy Court approved the proposed sale and settlement agreement. The court also ruled that the transfer of assets was exempt from stamp taxes under § 1146(a). The sale closed on March 16, 2004.

Piccadilly filed its initial Chapter 11 plan in the Bankruptcy Court on March 26, 2004, and filed an amended plan on July 31, 2004.² The plan provided for distribution of the sale proceeds in a manner consistent with the settlement agreement. Before the Bankruptcy Court confirmed the plan, Florida filed an objection, seeking a declaration that the $39,200 in stamp taxes it had assessed on certain of Piccadilly's transferred assets fell outside § 1146(a)'s exemption because the transfer had not been “under a plan confirmed” under Chapter 11. On October 21, 2004, the bankruptcy court confirmed the plan. On cross-motions for summary judgment on the stamp-tax issue, the Bankruptcy Court granted summary judgment in favor of Piccadilly, reasoning 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. App. D to Pet. for Cert. 40a–41a. The District Court upheld the decision on the ground that § 1146(a), in certain circumstances, affords a stamp-tax exemption even when a transfer occurs prior to confirmation. In re Piccadilly Cafeterias, Inc., 379 B.R. 215, 226 (S.D.Fla.2006).

The Court of Appeals for the Eleventh Circuit affirmed, holding that “§ 1146[(a)]'s tax exemption may apply to those pre-confirmation transfers that are necessary to the consummation of a confirmed plan of reorganization, which, at the very least, requires that there be some nexus between the pre-confirmation transfer and the confirmed plan.” In re Piccadilly Cafeterias, Inc., 484 F.3d 1299, 1304 (2007) (per curiam). Finding the statutory text ambiguous, the Court of...