In re Constable Terminal Corp.
| Decision Date | 28 July 1998 |
| Docket Number | Bankruptcy No. 96-22691 (NLW),Adversary No. 96-2692(NLW). |
| Citation | 222 BR 734 |
| Parties | In re CONSTABLE TERMINAL CORP., Debtor. CONSTABLE TERMINAL CORP., Plaintiff, v. CITY OF BAYONNE, NEW JERSEY, Defendant. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
John R. Wenzke, Lasser Hochman, L.L.C., Roseland, NJ, for Constable Terminal Corp.
Kevin Hanly, Hanly & Ryglicki, Edgewater, NJ, for City of Bayonne.
Before the Court is the City of Bayonne's Cross-Motion to Grant Partial Summary Judgment on that portion of the complaint filed by Constable Terminal Corp. ("Constable") which seeks tax refunds. The City of Bayonne ("Bayonne") argues that Constable is not entitled to a refund for real estate taxes paid for 1991 - 1994 because Constable failed to file a timely tax appeal. Bayonne asserts that Bankruptcy Code § 505(a)(2)(B) provides that any right of an estate to a tax refund is conditioned upon a proper request by the trustee or debtor for a refund. In response, Constable argues that the statutory filing requirements are merely procedural in nature and the broad grant of power in § 505 allows the court to overcome this procedural obstacle. Moreover, Constables asserts that it was procedurally barred under state law from ever filing a tax appeal and that it would be inequitable to deny it an opportunity to do so now. As set forth at greater length below, the court finds that Constable cannot obtain a refund of taxes paid for the years 1991 through 1994.
The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference by the United States District Court of New Jersey dated July 23, 1984. The issues raised by this contested matter are core proceedings as defined by Congress in 28 U.S.C. § 157(b)(2)(A), (B), (K) and (O). The within opinion constitutes this Court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
From 1984 until August 5, 1997, Constable operated a bulk liquid storage business of non-petroleum liquid products. The majority of Constable's operations were conducted on its property located at Block 482, Lots 10 & 11, City of Bayonne, New Jersey.
Constable claims that beginning in the late 1980's its financial condition was such that it could not timely pay the taxes assessed by Bayonne. Although Constable paid some quarterly tax payments for the years 1991 through 1994, it was not able to pay the full amount due. Pursuant to the books and records of the City of Bayonne, Constable paid all taxes assessed for the tax years 1991 through 1994 on lot 10 and all of the taxes for 1991 through 1993 on lot 11. In addition, Constable paid approximately one half of the taxes assessed for 1994 on lot 11 and the first quarter of the taxes owed on lot 10 for 1995. Cardillo Cert. At Ex. A. Constable asserts that its inability to bring its tax payments current effectively precluded it from pursuing tax appeals in the New Jersey State Court. Arguing that the property was overassessed for those years, Constable now seeks a refund for these tax over payments. Prior to filing the adversary proceeding, Constable had not file a tax appeal or request for refund for the prepetition years 1991, 1992, 1993 or 1994.
On April 3, 1996, Constable filed a voluntary petition under Chapter 11 of the Bankruptcy Code. Constable has operated as a Debtor-in-Possession since filing its petition.
On October 4, 1996, Bayonne filed a proof of claim asserting that Constable owed real estate taxes totaling $241,225.24.
On November 6, 1996, Constable commenced the instant adversary proceeding to determine the amount of pre-petition taxes due and to determine the proper assessment of taxes for the post-petition years 1995 through 1997. Constable obtained a Limited Appraisal Summary Report of the Property from John O. Lasser Associates Inc. for the years 1991 through 1997 ("Lasser Appraisal"). The Lasser Appraisal posits an appraised value of the Constable property that is significantly less than the assessed value identified by Bayonne. For the years 1991 through 1997, Bayonne assessed the property at a value of $2,632,000. In contrast, the Lasser Appraisal concludes that in the period 1991 through 1997 the property declined in value from $985,000. to $930,000. Constable notes that on August 5, 1997, pursuant to Code Section 363, the Constable property was sold for $750,000. Accordingly, Constable asserts that it overpaid based on the allegedly inflated assessment for the years 1991 through 1994, and those overpayments should be offset against subsequent taxes billed, and if there are any funds in excess of the offset, those funds should be refunded to Constable.
On December 16, 1997, Constable filed a motion to Compel Discovery and/or Strike Answer and Defenses. Bayonne responded on December 29, 1997 by filing a Cross-Motion to Compel Discovery and to Grant Partial Summary Judgment Dismissing Claims for Tax Refunds. The decision that follows only decides Bayonne's cross-motion for summary judgment and does not address the discovery matters raised by both parties.
Both parties agree that Bankruptcy Code § 505(a)(1) provides bankruptcy courts with broad authority to determine the amount and validity of any tax. They likewise agree that the greater weight of case authority holds that a debtor's failure to comply with a taxing authority's procedural requirements does not preclude the court from the reaching the issue. See, In re Custom Distribution Services, Inc., 216 B.R. 136, 148 (Bankr.D.N.J.1997); In re A.W.B. Assoc., G.P., 144 B.R. 270, 277 (Bankr.E.D.Pa.1992); In re 499 Warren Street Assoc., 143 B.R. 326, 329 (Bankr.N.D.N.Y.1992). These cases hold that a central purpose of § 505 is to protect creditors "from the dissipation of an estate's assets which could result if creditors were barred by a tax judgment which a debtor, due to its ailing condition, failed to contest." A.W.B. Assoc., 144 B.R. at 277 (citing In re Northwest Beverage, Inc., 46 B.R. 631, 635 (Bankr.N.D.Ill.1985)).
In light of the acknowledged purpose of the statute it seems logical that the failure to adhere to procedural requirements should not pose a bar to a debtor's efforts to obtain a tax refund or a tax credit. However, Bayonne argues that the very terms of § 505(a)(2)(B) restrict the court's ability to authorize refunds or credits. Further, Bayonne submits that this constriction of court authority is consistent with the legislative history and with § 2a(2A) of the Bankruptcy Act, the predecessor to § 505. Bayonne urges the court to find that the phrase "properly requests such refund from the governmental unit" contained in § 505(a)(2)(B)(i) requires that a debtor or trustee has requested or requests the refund or credit within the time period established by state law. According to Bayonne, N.J.S.A. § 54:321 provides the statutory mechanism for obtaining a refund, and pursuant to that statute a taxpayer must file a tax appeal on or before April 1 of the disputed tax year with either the County Board of Taxation or the Tax Court. Constable did not timely appeal the assessments for 1991 through 1994. Thus, Bayonne argues that although Constable may challenge and obtain a reduction of the assessments under § 505(a)(1), the bankruptcy court may not award a refund or offset because Constable did not properly (i.e. timely) request a refund as required by § 505(a)(2)(B)(i).
Constable rejects as illogical the construction of § 505 advanced by Bayonne. It contends that the authority in § 505(a)(1) to modify an assessment necessarily is accompanied by the power to direct a refund or credit based on the reassessment. Constable urges the court to find that the deadline for filing a tax appeal as well as the requirement for payment of taxes set forth in the New Jersey statute are merely procedural and do not preclude the bankruptcy court from awarding a refund or authorizing an offset. Constable additionally argues that § 505(a)(2)(B) is inapplicable because the refund is sought as an offset to Bayonne's filed proof of claim.
After consideration of the reasoning and case authority proffered by the parties in support of their respective positions, the court finds that the analysis provided by Bayonne is more persuasive.
11 U.S.C. §§ 505(a)(2)(A), (B) (emphasis supplied). Clearly, when addressing whether the court may grant a debtor a tax refund, the court's decision of the issue must begin with the language of § 505(a)(2)(B). What becomes troublesome, however, is interpreting what Congress means when it says the trustee must "properly request" such refund.
When seeking to effectuate Congressional intent, a court's inquiry begins with the text of the statute. Meinhardt v. Unisys Corp. (In re Unisys Sav. Plan Litig.), 74 F.3d 420, 444 (3d Cir.1996) (citing Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1198 (3d Cir.1993), cert. denied, 510 U.S. 1042, 114 S.Ct....
To continue reading
Request your trial