In re Boston Regional Medical Center, Inc.
| Decision Date | 27 August 2001 |
| Docket Number | No. MB 00-129,MB 01-012.,MB 01-011,MB 00-129 |
| Citation | 265 BR 838 |
| Parties | In re BOSTON REGIONAL MEDICAL CENTER, INC., Debtor. Commonwealth Of Massachusetts Division Of Employment And Training, Appellant and Cross Appellee, v. Boston Regional Medical Center, Inc., Appellee and Cross Appellant, and Official Committee Of Unsecured Creditors, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, First Circuit |
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Thomas F. Reilly, Attorney General of Massachusetts, Robert Ganong, Special Assistant Attorney General, Daniel J. Hammond, Assistant Attorney General, for the Appellant, Cross Appellee, Commonwealth of Massachusetts Division of Employment and Training.
Harold B. Murphy, D. Ethan Jeffery and Hanify & King Professional Corporation, for the Appellee, Cross Appellant, Boston Regional Medical Center, Inc. and the Appellee, Official Committee of Unsecured Creditors.
Before LAMOUTTE, HAINES, DEASY, U.S. Bankruptcy Appellate Panel Judges.
The Bankruptcy Appellate Panel has jurisdiction of this appeal pursuant to 28 U.S.C. § 158(b). As the parties submitted all factual issues to the bankruptcy court by joint stipulations, this appeal involves no contested findings of fact. See In re Boston Reg'l Med. Ctr., 256 B.R. 212, 215 (Bankr.D.Mass.2000); Joint Stipulation with Respect to Objection to Proofs of Claim of Massachusetts Division of Employment and Training dated June 5, 2000, Record Appendix at 133-42; Joint Stipulation with Respect to Administrative Claim of Massachusetts Division of Employment and Training dated January 11, 2001, Record Appendix at 2.1 The bankruptcy court's rulings of law are reviewed de novo. Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 30 (1st Cir.1994).
This consolidated appeal stems from an appeal by the Massachusetts Division of Employment and Training f/k/a the Massachusetts Department of Employment and Training (the "DET") and the cross-appeal of the Debtor, Boston Regional Medical Center, Inc. ("BRMC"),2 from the bankruptcy court's Memorandum of Decision on Debtor's Objection to Claims of Massachusetts Division of Employment and Training dated December 4, 2000, (Kenner, J.) (256 B.R. 212 (Bankr.D.Mass.2000)), and DET's appeal of the bankruptcy court's Final Order on Debtor's Objection to Claims of Massachusetts Division of Employment and Training entered on January 17, 2001.
DET has appealed the bankruptcy court's ruling that although "payments in lieu of contributions" are taxes under 11 U.S.C. § 507(a)(8), DET's claim for such payments was not entitled to priority under 11 U.S.C. § 507(a)(8)(D) or any other section of the Bankruptcy Code. DET has also appealed the bankruptcy court's ruling that only a portion of its claim was entitled to treatment as a priority administrative expense under section 503(b)(1)(B)(i).3 BRMC has filed a cross-appeal of the bankruptcy court's holding that "payments in lieu of contributions" under the Massachusetts state unemployment scheme are taxes within the meaning of section 507(a)(8).
As discussed in this opinion, the Panel has reached its conclusions on the issues in this case by a different path than the one taken by the bankruptcy court. However, because it arrived at the same conclusions and result, the decision of the bankruptcy court is affirmed.
BRMC was a non-profit organization that operated a hospital in Stoneham, Massachusetts. As a non-profit organization, BRMC was permitted under Massachusetts law to elect to reimburse the state Unemployment Compensation Fund for the amount of benefits that were actually paid to former employees, and chargeable to BRMC, rather than pay regular quarterly contributions4 based upon its payroll and experience rating. See Mass. Gen. Laws ch. 151A, § 14A(a). Such payments are known as "payments in lieu of contributions." An excellent summary of the provisions of the Massachusetts Employment and Training Law applicable to this case is contained in the opinion of the bankruptcy court and will not be repeated here. See Boston Reg'l Med., 256 B.R. at 217-19.
On February 4, 1999, BRMC filed a voluntary petition under Chapter 11 of the Bankruptcy Code. At that time, BRMC had begun to wind up its affairs and had already discharged some of its employees. Within two weeks of the bankruptcy filing the debtor in possession (the "Estate")5 discharged another 1,124 of its employees. By March 31, 1999, sixty-eight more employees had been discharged by the Estate. Finally, between April 1, 1999, and February 14, 2000, the Estate discharged sixty-seven employees. Many of the discharged employees applied for and received unemployment benefits from the state's Unemployment Compensation Fund.
DET filed two proofs of claim for unpaid payments in lieu of contributions for the benefits that had been paid to the discharged employees. On February 17, 1999, DET filed a proof of claim in the amount of $250,282.00 for benefits that had been paid prepetition to discharged employees (the "Prepetition Claim"). On June 21, 1999, DET filed a second proof of claim for benefits paid postpetition to discharged employees, which claim was subsequently amended upwards to $2,800,575.00 (the "Postpetition Claim").6 DET claimed that the Prepetition Claim was an unsecured prepetition tax claim entitled to priority under section 507(a)(8)(D) and that the Postpetition Claim was an administrative expense claim entitled to priority under section 503(b)(1)(B)(i). The Estate objected to both of DET's claims.
The parties filed a joint stipulation in the bankruptcy court in which they agreed that the there were three legal issues to be decided. See RA at 133-42. First, whether the Prepetition Claim was a "tax" entitled to priority under section 507(a)(8)(D). Second, whether the unemployment benefits paid postpetition to employees discharged prepetition qualified as a priority administrative expense. Third, whether the amount claimed in the Postpetition Claim was entitled to treatment as a priority administrative expense under section 507(a)(1). See Boston Reg'l Med., 256 B.R. at 217.
On December 4, 2000, the bankruptcy court held that the amount claimed in the Prepetition Claim was a tax within the meaning of section 507(a)(8), but was not a tax "on wages, salaries or commissions within the meaning of § 507(a)(8)(D)." Id. at 227. The bankruptcy court also held that a portion of the Postpetition Claim was entitled to administrative expense priority under section 503(b)(1)(B)(i). However, administrative expense priority was given only to benefits paid to employees "to the extent that under applicable state law such benefits were attributable to service in the employ of" the Estate, not BRMC. Id. at 229. The bankruptcy court scheduled further proceedings to quantify the allowed amounts of DET's two claims.
The parties subsequently filed a Joint Stipulation with Respect to Administrative Claim of Massachusetts Division of Employment and Training dated January 11, 2001 (the "Admin. Stipulation"). See RA at 2. In the Admin. Stipulation the parties resolved any remaining factual disputes and agreed, subject to DET's rights of appeal, that application of the bankruptcy court's decision would result in the aggregate Prepetition and Postpetition Claims being allowed as a general unsecured claim in the amount in the amount of $2,961,374.00 and a priority administrative claim in the amount of $89,483.00. On January 17, 2001, the bankruptcy court entered a final order allowing DET's aggregate claims in accordance with the Admin. Stipulation. This consolidated appeal followed.
Whether an assessment imposed by a state is a tax entitled to priority under the Bankruptcy Code is a question of federal law. City of New York v. Feiring, 313 U.S. 283, 285, 61 S.Ct. 1028, 85 L.Ed. 1333 (1941); In re Pan Am. Paper Mills, Inc., 618 F.2d 159, 162 (1st Cir. 1980). Under the Bankruptcy Act the Supreme Court established a two part test, the Anderson-Feiring Test, to determine what was a tax for federal bankruptcy purposes. See Feiring, 313 U.S. 283, 61 S.Ct. 1028, 85 L.Ed. 1333; State of New Jersey v. Anderson, 203 U.S. 483, 27 S.Ct. 137, 51 L.Ed. 284 (1906). Under the first part of the Anderson-Feiring Test, the exaction must have the attributes of a tax. A tax is "a pecuniary burden laid upon individuals or their property . . . for the purpose of defraying the expenses of government or of undertakings authorized by it." Feiring, 313 U.S. at 288, 61 S.Ct. 1028; see Anderson, 203 U.S. at 492, 27 S.Ct. 137. Further, an exaction that is a tax is fixed by statute and can be enforced against the will of a taxpayer. See Feiring, 313 U.S. at 287, 61 S.Ct. 1028; Anderson, 203 U.S. at 492, 27 S.Ct. 137. In Feiring the Court fleshed out this definition by specifically pointing out that an exaction is no less a tax because the statute provides an alternative wherein the tax can be collected from either the purchaser or the seller of the property. See Feiring, 313 U.S. at 287-88, 61 S.Ct. 1028.
Under the second part of the Anderson-Feiring Test, the exaction which has the attributes of a tax, must not be a "debt" or a "penalty." United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213, 226, 116 S.Ct. 2106, 135 L.Ed.2d 506 (1996). A "debt" is an obligation "for the payment of money founded upon contract, express or implied." Anderson, 203 U.S. at 492, 27 S.Ct. 137. A penalty, although defined by the Supreme Court in a different context, is "an exaction imposed by statute as punishment for an unlawful act." United States v. LaFranca, 282 U.S. 568, 572, 51 S.Ct. 278, 75 L.Ed. 551 (1931). Finally, while looking at all of these characteristics of a tax the court should keep in mind the underlying policies of the Bankruptcy Code. See Feiring,...
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