In re Bankruptcy Estate of Markair, Inc.

Citation308 F.3d 1057
Decision Date21 October 2002
Docket NumberNo. 01-35892.,No. 01-35901.,01-35892.,01-35901.
PartiesIn re BANKRUPTCY ESTATE OF MARKAIR, INC., Debtor. North Slope Borough, Appellant, v. William Barstow, III, Trustee for the Bankruptcy Estate of MarkAir, Inc., Appellee. In re Bankruptcy Estate of MarkAir, Inc., Debtor. Municipality of Anchorage, Appellant, v. William Barstow, III, Trustee for the Bankruptcy Estate of MarkAir, Inc., Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

David D. Clark, Law Office of David D. Clark, Robert P. Crowther, Law Office of Robert Crowther, and William A. Greene, Municipal Attorney, Municipality of Anchorage, Anchorage, AK, for the appellants.

John C. Siemers, Burr, Pease & Kurtz, Anchorage, AK, for the appellee.

Appeals from the United States District Court for the District of Alaska; James K. Singleton, Chief Judge, Presiding. D.C. No. CV-00-00181-A-JKS.

Before: B. FLETCHER, ALARCÓN, and GRABER, Circuit Judges.

GRABER, Circuit Judge.

North Slope Borough and the Municipality of Anchorage (Creditors) held tax liens on real property formerly owned by MarkAir, Inc., a Chapter 7 bankruptcy debtor. The Creditors seek part of the proceeds from a sale of that property by the debtor's estate. The Trustee of the estate, William Barstow, seeks to subordinate the Creditors' tax-lien claims entirely to the claims of priority unsecured creditors pursuant to § 724(b) of the Bankruptcy Code, 11 U.S.C. § 724(b). We hold that, under § 724(b), priority unsecured creditors have a right to obtain only that portion of the proceeds equaling the amount of the tax liens; any remaining proceeds go first to junior lien claimants, then to the holders of the tax liens insofar as their claims were not already satisfied and, finally, to the estate. In the circumstances, the Creditors are entitled to a share of the proceeds. Accordingly, we reverse the contrary decision of the district court and reinstate the decision of the bankruptcy court.

FACTUAL AND PROCEDURAL BACKGROUND

In June of 1992, MarkAir filed for bankruptcy under Chapter 11. After an unsuccessful reorganization, the case was converted to a Chapter 7 proceeding. The Trustee then sold several parcels of real property owned by the estate. Those parcels were subject to a number of liens, including tax liens held by the Creditors.

The Creditors asserted their right to a share of the proceeds from the sale. The Trustee refused to pay them, citing 11 U.S.C. § 724(b) and arguing that the Creditors' claims were completely subordinate to the claims of certain priority unsecured creditors (namely, those who incurred administrative expenses and those who held unusable MarkAir tickets).1 Those unsecured claims amounted to several million dollars.

The bankruptcy court, relying on the text of § 724(b) and cases and secondary authorities interpreting it, rejected the Trustee's construction and awarded the Creditors a share of the sale proceeds. The district court reversed, holding that § 724(b) required complete subordination of tax-lien claims to priority unsecured claims. The Creditors filed timely notices of appeal.

STANDARDS OF REVIEW

We review de novo the district court's decision on an appeal from a bankruptcy court. Neilson v. Chang (In re First T.D. & Inv., Inc.), 253 F.3d 520, 526 (9th Cir. 2001). We review the bankruptcy court's conclusions of law de novo and its factual findings for clear error. Id. We review de novo questions of statutory construction. Silver Sage Partners, Ltd. v. City of Desert Hot Springs, 251 F.3d 814, 819(9th Cir.2001).

DISCUSSION
A. Finality

After concluding that the bankruptcy court improperly compelled payment of the Creditors' claims, the district court remanded the case for a determination of the amount of interest due on the Trustee's refund claim. Nonetheless, the Creditors assert that the district court's decision is final for the purpose of appellate review. Although the Trustee does not object to our hearing this appeal, parties may not confer jurisdiction by agreement. We must consider independently whether appellate review is permissible at this point in the bankruptcy proceedings. Dominguez v. Miller (In re Dominguez), 51 F.3d 1502, 1506 (9th Cir.1995).

Typically, a district court's decision is final when it affirms or reverses a bankruptcy court's final order. Lundell v. Anchor Constr. Specialists, Inc. (In re Lundell), 223 F.3d 1035, 1038 (9th Cir.2000). Difficult questions regarding finality sometimes arise when, as here, a district court reverses a final order of a bankruptcy court but also remands for further proceedings. Bonner Mall P'ship v. U.S. Bancorp Mortgage Co. (In re Bonner Mall P'ship), 2 F.3d 899, 904 (9th Cir.1993), cert. dismissed, 513 U.S. 18, 115 S.Ct. 386, 130 L.Ed.2d 233 (1994). We resolve such questions of finality through a pragmatic approach; a district court's decision can be considered final for the purpose of appellate review even when a question has been remanded to the bankruptcy court. See Lundell, 223 F.3d at 1038(holding that the appellate court had jurisdiction despite a remand to the bankruptcy court for "more specific findings of fact and for further proceedings to apply the correct burden of proof"); DeMarah v. United States (In re DeMarah), 62 F.3d 1248, 1250(9th Cir. 1995) (holding that the court had jurisdiction despite a remand to the bankruptcy court for entry of an order allocating the amount and extent of tax liens).

If the matters on remand "concern primarily factual issues about which there is no dispute, and the appeal concerns primarily a question of law, then the `policies of judicial efficiency and finality are best served by our resolving the question now.'" Id. (quoting Zolg v. Kelly (In re Kelly), 841 F.2d 908, 911 (9th Cir.1988)). On the other hand, if "the district court remands for further factual findings related to a central issue raised on appeal," the district court's decision is usually not final. Bonner Mall P'ship, 2 F.3d at 904. Even when the remand involves factfinding on a central issue, we may nonetheless exercise jurisdiction "if that issue is legal in nature and its resolution either (1) could dispose of the case or proceedings and obviate the need for factfinding; or (2) would materially aid the bankruptcy court in reaching its disposition on remand." Lundell, 223 F.3d at 1038 (citing Bonner Mall P'ship, 2 F.3d at 904).

In this case, the remand required the bankruptcy court to determine the amount of interest to which the Trustee is entitled on his refund claim. That question is only tangentially related to the central legal issue on appeal, namely, whether the Trustee is entitled to any refund at all. Further, even if the amount of interest could be characterized as a central issue, appellate review would be appropriate because our reversal of the district court's opinion would "dispose of the case or proceedings and obviate the need for factfinding." Id. Thus, under this circuit's pragmatic approach, we may regard the district court's decision as final. We turn, then, to the merits.

B. Statutory Text

Section 724(b) provides:

Property in which the estate has an interest and that is subject to a lien that is not avoidable under this title and that secures an allowed claim for a tax, or proceeds of such property, shall be distributed —

(1) first, to any holder of an allowed claim secured by a lien on such property that is not avoidable under this title and that is senior to such tax lien;

(2) second, to any holder of a claim of a kind specified in section 507(a)(1), 507(a)(2), 507(a)(3), 507(a)(4), 507(a)(5), 507(a)(6), or 507(a)(7) of this title, to the extent of the amount of such allowed tax claim that is secured by such tax lien;

(3) third, to the holder of such tax lien, to any extent that such holder's allowed tax claim that is secured by such tax lien exceeds any amount distributed under paragraph (2) of this subsection;

(4) fourth, to any holder of an allowed claim secured by a lien on such property that is not avoidable under this title and that is junior to such tax lien;

(5) fifth, to the holder of such tax lien, to the extent that such holder's allowed claim secured by such tax lien is not paid under paragraph (3) of this subsection; and

(6) sixth, to the estate.

11 U.S.C. § 724(b) (emphasis added).

A paragraph-by-paragraph analysis of § 724(b) reveals that the Creditors' interpretation of the statute is much more persuasive than the Trustee's.

Paragraph (b)(1) requires the Trustee first to pay nontax liens that would be senior in priority to tax liens even in the absence of § 724(b).2

Paragraph (b)(2) requires the Trustee next to pay the claims of certain priority unsecured creditors, enumerated in paragraphs 507(a)(1) through (a)(7) of the Bankruptcy Code. 11 U.S.C. § 507(a)(1)-(7). However, paragraph (b)(2) also contains a limiting clause, allowing payment of these claims only "to the extent of the amount of such allowed tax claim that is secured by such tax lien." 11 U.S.C. § 724(b)(2). In other words, the priority unsecured claims are to be paid only up to the amount of the subordinated tax lien. If the priority unsecured claims are less than or equal to the amount of the tax lien, they are paid in full. On the other hand, if the priority unsecured claims exceed the amount of the tax lien, they are paid only in part, up to the amount of the tax lien. Even the Trustee accepts this preliminary construction of paragraph (b)(2), although he argues that the limiting clause in that paragraph provides merely "a definition."

• Third, in certain circumstances the Trustee must pay part of the tax lienholder's claim under paragraph (b)(3). If the amount of priority unsecured claims exceeds the amount of the tax lien, the tax-lien claimant receives nothing under this paragraph.3 However, if the amount of the tax lien exceeds the amount of priority unsecured claims, the tax-lien creditor...

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