In re Cody, Inc.

• Decision Date: 15 July 2002
• Docket Number: No. 02 Civ. 2764(CM).,02 Civ. 2764(CM).
• Citation: 281 B.R. 182
• Parties: In re CODY, INC., Debtor. Cody, Inc., Appellant/Plaintiff, v. County of Orange and Town of Woodbury, Appellees/Defendants.
• Court: U.S. District Court — Southern District of New York

281 B.R. 182

In re CODY, INC., Debtor.

Cody, Inc., Appellant/Plaintiff, v. County of Orange and Town of Woodbury, Appellees/Defendants.

No. 02 Civ. 2764(CM).

United States District Court, S.D. New York.

July 15, 2002.

COPYRIGHT MATERIAL OMITTED

Joseph J. Haspel, Goshen, NY, for Appellant.

Mark Nash, Goshen, NY, David Hagstram, Vanderwater & Vanderwater, Poughkeepsie, NY, for County of Appellees.

DECISION AND ORDER OF AFFIRMANCE

MCMAHON, District Judge.

STATEMENT OF ISSUES PRESENTED

The issue presented in this appeal is:

Whether the United States Bankruptcy Court for the Southern District of New York (Hon. Adlai S. Hardin, Jr., Bankruptcy Judge) abused its discretion when an Order it entered on February 11, 2002, dismissing the Adversary Proceeding No. 01-05346, and abstaining pursuant to 28 U.S.C. § 1334(c)(1), from determining plaintiff's tax liability under 11 U.S.C. § 505(a)(1).

STANDARD OF REVIEW

The general standard of review for bankruptcy appeals is stated in Federal Rules for Bankruptcy Procedure, Rule 8013, which provides:

On an appeal the district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.

The exercise of discretion in granting or denying a motion pursuant to abstain pursuant to 28 U.S.C. § 1334(c)(1) and 11 U.S.C. § 505(a)(1) of the Bankruptcy Code is reviewed to determine whether the bankruptcy court abused its discretion because it "based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence." Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990); In re New Haven Projects Ltd. Liability Co., 225 F.3d 283, 289 (2d Cir.2000), cert. denied, 531 U.S. 1150, 121 S.Ct. 1093, 148 L.Ed.2d 966 (2001) (the bankruptcy court did not abuse its discretion to abstain under 11 U.S.C. § 505(a) from re-determining debtor's tax debt); In re Prudential Lines, Inc., 170 B.R. 222, 228-29 (S.D.N.Y.1994) (the bankruptcy court's exercise of discretion to abstain pursuant to § 1334(c)(1) is subject to appellate review under an abuse of discretion standard). See also, Cohen v. Doyaga, 2001 WL 257828 (E.D.N.Y. March 9, 2001) and In re Bean, 251 B.R. 196 (E.D.N.Y.2000) (while decisions of law are reviewed de novo, matters committed to the discretion of the Bankruptcy Court are reviewed for abuse of discretion).

Here, the decision of the Bankruptcy Court to exercise its discretion and abstain under 11 U.S.C. § 505(a) and 28 U.S.C. § 1334(c)(1) from hearing an adversary proceeding to determine whether real property owned by Appellant is tax exempt should be affirmed because the Bankruptcy Court applied the correct legal standard and offered substantial justification for its finding. See, e.g., In re New Haven Projects Ltd. Liability Co., 225 F.3d 283, 289 (2d Cir.2000).

STATEMENT OF THE CASE

In this case, Appellant/debtor Cody, Inc. ("Cody") appeals from the February 11, 2002 Order of the Honorable Adlai S. Hardin, Jr. ("Order") abstaining from determining, under 11 U.S.C. § 505(a)(1), whether the debtor is exempt from all property taxes because it is a religious corporation. This appeal relates only to tax years 1994, 1995, 1998, and 2001. Appellant does not appeal the Order insofar as it relates to the 1996¹, 1997, 1999 and 2000² tax years. Tax certiorari proceedings for those years are currently pending in the Supreme Court of the State of New York, County of Orange.

Cody invokes the general remedy created under § 505(a)(1) to evade (and dictate the result of) specific remedies given the Town and County as taxing authorities under New York State law and specifically Article 7 of N.Y. Real Property Tax Law. Cody's theory is founded on the erroneous assumption that it is entitled to tax-exempt status for all real property for which it is the record owner because it is a religious corporation. However, the burden of demonstrating that the exempt organization is being used exclusively to carry out religious or educational purposes as required under New York Real Property Tax Law § 420-a is on the party seeking the tax exemption, not the taxing authority. See Long Island Foundation for Educ. and Jewish Research, Inc. v. Michael, 97 A.D.2d 843, 844, 469 N.Y.S.2d 85 (2d Dept.1983), motion for leave to appeal denied, 62 N.Y.2d 602, 476 N.Y.S.2d 1026, 465 N.E.2d 47 (1984). Cody has carefully avoided litigating that issue in Supreme Court of the State of New York, although it has had ample opportunity to do so over the many years involved in these proceedings.

As the Bankruptcy Court aptly concluded,

[T]he sole purpose [of this Chapter 11 case is] to seek an adjudication under Section 505 of the Bankruptcy Code of the tax status of the debtor and its obligation to pay taxes to the defendants in the adversary proceeding ... [T]his Court should not become involved in any of the differing issues and procedural postures of the various tax years that are involved between the taxing authorities and the debtor. The debtor unquestionably has had ample opportunity to litigate these issues. It is litigating the issues in currently pending proceedings ... [I]t is ... an inappropriate exercise of jurisdiction for this Court to step in at this very, very late date and seek to revisit and relitigate matters that have been or could have been litigated in the State Court system. They are of a quintessential state law character and the appropriate administrative and state judicial authorities should decide them.

(Transcript of Decision, January 3, 2002³, T24-T26, attached as Exhibit "B" to Brief of Appellant)

In so concluding the Bankruptcy Court correctly assessed the "finer points of the parties' past dealings and relationships, and the more wide-ranging aspects of the balance of powers between local governments and the national government in our federal system." In re Northbrook Partners LLP, 245 B.R. 104, 111 (Bankr.D.Minn.2000).

This Court therefore affirms the Bankruptcy Court's Decision to abstain under 28 U.S.C. § 1334(c)(1) from exercising its discretion under 11 U.S.C. § 505(a) to revisit the tax-exempt status of its real property as to all property for which it is the record owner.

STATEMENT OF RELEVANT FACTS AND PROCEDURAL HISTORY

Cody is the record owner of certain parcels of real property located in the Town of Woodbury, hereinafter "Town," Orange County, New York, designated on the tax maps as Section 25, Block 1, Lots 31.22, 45.1, 45.2 and 46 through 67 inclusive. Cody became the record owner of these parcels sometime during 1994. Based upon assessments provided by the Town to the County, the County levied real property taxes on these parcels that went unpaid and continue to be due and owing. No real property taxes have been paid as to any of the parcels that are the subject of this appeal since 1995.

PRE-PETITION PROCEDURAL HISTORY

Since 1994, Cody has applied to the Town assessor for exemptions for all or some of its lots, filed tax grievance complaints with the Board of Assessment Review of the Town of Woodbury for all or some of its lots in 1994, 1996, 1997, 2000 and 2001 and filed Tax Certiorari Petitions under Article 7 of the N.Y. Real Property Tax Law in the Supreme Court of the State of New York, County of Orange for all or some of its lots in 1994, 1996, 1997, 1999, and 2000. The 1994 tax certiorari proceeding, Cody Inc. v. Town of Woodbury, under County Clerk Index No. 4845-94, was deemed abandoned and dismissed by the decision of the Hon. Louis C. Palella, J.S.C. on September 22, 1999, because no trial note of issue was filed within four years of the commencement of the action as required under N.Y. Real Property Tax Law § 718.

On or about November 19, 1997, Appellant filed a Complaint in the United States District Court for the Southern District of New York challenging the Town assessor's alleged failure to grant tax exempt status to Cody claiming that Cody's civil rights under the First and Fourteenth Amendments to the United States Constitution were violated under 42 U.S.C. § 1983. The District Court (Brieant, J.) on June 11, 1998 dismissed the Complaint pursuant to 28 U.S.C. § 1341,⁴ ("Tax Injunction Act"), holding that a proceeding was available by which property owners dissatisfied with an assessor's initial determination as to an exemption could obtain review of such determination on the merits, and that such a proceeding is adequate as a matter of law to satisfy the statutory prerequisite to invocation of § 1341. See Cody, Inc. v. Town of Woodbury, 8 F.Supp.2d 340, 343 (S.D.N.Y.1998), aff'd in applicable part and dismissed in part, 179 F.3d 52 (2d Cir.1999).⁵

In October of 2000, the County served Cody with a Petition of Foreclosure venued in the Supreme Court of the State of New York, County of Orange, with respect to the delinquent parcels that are the subject of this appeal. On or about January 10, 2001, Cody served a timely Answer. Cody's sole defense for nonpayment was that all the parcels are exempt from taxation because Cody is a religious corporation, allegedly using all of these parcels for religious and educational purposes. After motion practice heard before the Honorable Peter C. Patsalos, J.S.C., in In the Matter of the Foreclosure of Tax Liens v. Cody, Inc., under County Clerk Index No.2001-3381, the County filed its Request for Judicial Intervention on or about June 18, 2001. Additionally, the County filed a Notice of Motion dated June 15, 2001 and returnable July 6, 2001, seeking an Order striking Cody's Answer and directing foreclosure. At the request of Cody's then-counsel, the Motion was adjourned until August 3, 2001.

POST-PETITION PROCEDURAL...