Holywell Corp., In re
| Citation | 911 F.2d 1539 |
| Decision Date | 18 September 1990 |
| Docket Number | No. 89-5862,89-5862 |
| Parties | -5625, 59 USLW 2242, 90-2 USTC P 50,509, 20 Bankr.Ct.Dec. 1603, Bankr. L. Rep. P 73,645 In re HOLYWELL CORPORATION, Debtor. (Two Cases) Fred Stanton SMITH, as Trustee of the Miami Center Liquidating Trust, Plaintiff-Appellee, v. UNITED STATES of America, Holywell Corporation, Miami Center Limited Partnership, Miami Center Corporation, Chopin Associates, Theodore B. Gould, Defendants-Appellants, Shutts & Bowen, Intervenor, Bank of New York, Defendant-Appellee. Fred Stanton SMITH, as Trustee of the Miami Center Liquidating Trust, Plaintiff-Appellee, v. UNITED STATES of America, Defendant, Holywell Corporation, Miami Center Limited Partnership, Miami Center Corporation, Chopin Associates, Theodore B. Gould, Defendants-Appellants, Shutts & Bowen, Intervenor, Bank of New York, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Gary R. Allen, Chief, Appellate Section, Tax Div., Gary D. Gray, Francis M. Allegra, Robert W. Metzler, Dept. of Justice, Washington, D.C., for defendant-appellant U.S.
Theodore B. Gould, Charlottesville, Va., pro se.
Robert M. Musselman, Robert M. Musselman & Associates, Charlottesville, Va., for debtor Holywell Corp.
Herbert Stettin, P.A., and Vance E. Salter, Coll, Davidson, Carter, Smith, Salter & Barkett, Miami, Fla., for plaintiff-appellee Fred Stanton Smith, trustee.
Barbara E. Vicevich, Miami, Fla., for intervenor Shutts & Bowen.
Appeal from the United States District Court for the Southern District of Florida.
Before HATCHETT and COX, Circuit Judges, and HENDERSON, Senior Circuit Judge.
In this bankruptcy case, we affirm the district court's ruling that a liquidating trustee was not required by the provisions of a confirmed amended Plan of Reorganization ("Plan") nor by statutory provisions to file tax returns and pay income taxes on the sale of pre-confirmation and post-confirmation properties.
Miami Center Limited Partnership ("MCLP"), a Florida limited partnership, obtained a construction mortgage from the Bank of New York ("BNY") to develop the "Miami Center," an office building and hotel complex in Miami, Florida. Following default on the mortgage, MCLP, Holywell Corporation, Chopin Associates, Theodore Gould, Miami Center Corporation, and other "insiders" (hereinafter collectively referred to as the "debtors") as defined in 11 U.S.C. Sec. 101(30)(C) (West Supp.1990) each filed a petition for reorganization under Chapter 11 of the Bankruptcy Reform Act of 1978. 1
Both BNY and the debtors submitted competing plans of reorganization and accompanying disclosure statements to the bankruptcy court. The Internal Revenue Service ("IRS"), a creditor, received copies of the plans and disclosure statements and also received notice of all scheduled hearings before the bankruptcy court. On October 10, 1985, following overwhelming approval by the creditors, the bankruptcy court confirmed BNY's amended Plan of Reorganization. The district court affirmed the confirmation order. See Holywell Corporation v. Bank of New York, 59 B.R. 340 (S.D.Fla.1986). This court subsequently dismissed, as moot, the debtors' appeal of the confirmation order because the Plan was substantially consummated and no effective relief could be fashioned. See Miami Center Limited Partnership v. Bank of New York, 838 F.2d 1547 (11th The Plan required consolidation of the debtors' estates, establishment of a liquidating trust, and appointment of a liquidating trustee. 2 The Plan was funded by all the debtors' assets, as defined in section 541(a) of the Bankruptcy Code, including proceeds from the pre-confirmation sale of certain of Holywell Corporation's properties (hereinafter the "Washington properties") and the anticipated post-confirmation sale of the Miami Center property. The Plan had no express provision requiring the liquidating trustee to either file tax returns or pay income taxes.
Cir.), cert. denied, 488 U.S. 823, 109 S.Ct. 69, 102 L.Ed.2d 46 (1988).
The corporate debtors did not file a tax return concerning the sale of pre-confirmation properties until January 4, 1988, although any gain would have been realized during the fiscal year ending July 31, 1985. 3 At that time they requested the liquidating trustee to pay the taxes owed. Neither the corporate debtor nor the liquidating trustee filed a tax return for the fiscal year ending July 31, 1986, which would have included gains realized from the sale of the Miami Center property.
The liquidating trustee filed an adversary proceeding in the United States Bankruptcy Court in December, 1987, naming the United States, BNY, and the debtors as defendants. The liquidating trustee sought a declaratory judgment concerning the obligation to file income tax returns and pay taxes, if any, in connection with the sale of the Washington properties and the Miami Center. On April 28, 1988, the bankruptcy court entered final judgment declaring that the liquidating trustee was not responsible for filing or paying income taxes.
Following entry of final judgment, both the United States and the debtors filed notices of appeal. After consolidating the appeals, the district court granted the debtors' emergency motion to stay the final judgment of the bankruptcy court. The court also granted the motion of a law firm, Shutts and Bowen, special counsel to the liquidating trustee, to intervene in the consolidated appeal for the purpose of seeking a lift of the stay in order to obtain payment of $917,000 in attorney fees.
BNY moved to dismiss the appeal, as moot, and the liquidating trustee moved for authorization to consummate the settlement with Dade County of ad valorem tax claims.
In July, 1989, the district court granted in part, and denied in part, the BNY's motion to dismiss. The court dismissed the appeal to the extent that the debtors sought to challenge the Plan based on allegations that BNY, through its plan of reorganization, attempted to defraud the government of income taxes. The district court denied the motion to the extent that the government and the debtors sought to enforce provisions of the Plan which they contended provided for the payment of income taxes. Additionally, the district court vacated its earlier stay of the bankruptcy court's final judgment.
The government and the debtors contend that this court has jurisdiction to decide whether the liquidating trustee is responsible for filing income tax returns and paying income taxes in connection with the The liquidating trustee contends that this court lacks jurisdiction to hear this appeal because the allegations constitute a substantial modification of the Plan. Addressing the merits, the liquidating trustee contends that the debtors were required to file tax returns and pay taxes, if any, relating to the sale of pre-confirmation and post-confirmation properties.
sale of the properties. Insofar as the merits of the complaint are concerned, they contend that under certain provisions of the Plan, the liquidating trustee was obligated to file and pay income taxes. Additionally, they contend that certain statutory provisions of the Income Tax Code require that the liquidating trustee file and pay taxes. Moreover, they contend that once that obligation arises, the grantor trust provisions of the Internal Revenue Code do not relieve the liquidating trustee of that duty.
We address the following issues: (1) whether this appeal is moot; (2) whether the provisions of the Plan require that the liquidating trustee pay all applicable income taxes on the sale of the pre-confirmation and post-confirmation properties; and (3) whether the income tax laws require that the liquidating trustee pay all applicable income taxes.
The government and the debtors contend that we have jurisdiction to decide this case despite our earlier decision dismissing their appeal of the district court's confirmation of the Plan. According to the government and the debtors, we have jurisdiction to decide whether the liquidating trustee failed to discharge his duties in accordance with the terms of the Plan. Further, they contend that we have jurisdiction to redress BNY's fraudulent act of submitting a plan of reorganization which failed to disclose the absence of any provision relating to the payment of income taxes.
The mootness doctrine, as applied in a bankruptcy proceeding, permits the courts to dismiss an appeal based on its lack of power to rescind certain transactions. See Markstein v. Massey Associates Ltd., 763 F.2d 1325 (11th Cir.1985); In re Roberts Farms, Inc., 652 F.2d 793 (9th Cir.1981); Miami Center Limited Partnership, 838 F.2d 1547. The mootness standard "is premised upon considerations of finality ... and the court's inability to rescind ... and grant relief on appeal." Miami Center Limited Partnership, 838 F.2d at 1553 (quoting In re Sewanee Land Coal & Cattle, Inc., 735 F.2d 1294 (11th Cir.1984)). In dismissing the debtors' previous challenge, this court was guided by "the important policy of bankruptcy law that court-approved reorganization plans be able to go forward based on court approval unless a stay is obtained." Miami Center Limited Partnership, 838 F.2d at 1555. Mindful of that policy, we will not entertain any challenge to the Plan which seeks to modify or amend its provisions.
The district court is correct in its ruling that the allegation of fraud is an attempt to modify or alter the Plan and is therefore barred under the mootness doctrine. The allegation seeks to alter the Plan by challenging the terms and provisions which the bankruptcy court and the district court approved. We also conclude that the allegation concerning the propriety of the bankruptcy court's approval of a plan which makes no express provision for income taxes is an attempt to alter or modify the Plan and is therefore barred. The need for...
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