In re DeRoche, 99-16058.

• Decision Date: 05 April 2002
• Docket Number: No. 99-16058.,99-16058.
• Citation: 287 F.3d 751
• Parties: In re Eric DeROCHE; Mary DeRoche, Debtors. Eric DeRoche; Mary DeRoche, Appellants, v. Arizona Industrial Commission, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

287 F.3d 751

In re Eric DeROCHE; Mary DeRoche, Debtors.

Eric DeRoche; Mary DeRoche, Appellants, v. Arizona Industrial Commission, Appellee.

No. 99-16058.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 16, 2001.

Filed April 5, 2002.

Allan NewDelman, Phoenix, AZ, for the appellants.

Tracy Essig, Office of the Attorney General, Phoenix, AZ, for the appellee.

Appeal from the United States District Court for the District of Arizona, Earl H. Carroll, District Judge, Presiding. D.C. No. CV-98-01270-EHC.

Before HUG, JR., NOONAN, and W. FLETCHER, Circuit Judges.

ORDER

This court's opinion, filed November 29, 2001, is hereby WITHDRAWN and replaced with the attached opinion.

With the filing of this new opinion, the panel has voted unanimously to deny the petition for rehearing. Judge W. Fletcher has voted to deny the petition for rehearing en banc, and Judges Hug and Noonan so recommend.

A judge of the court called for a vote on the petition for rehearing en banc. A vote was taken, and a majority of the active judges of the court failed to vote for en banc rehearing. Fed. R.App. P. 35(f).

The petition for rehearing and the petition for rehearing en banc, filed December 13, 2001, are DENIED.

OPINION

WILLIAM A. FLETCHER, Circuit Judge.

The Bankruptcy Code provides that "an excise tax on ... a transaction occurring during the three years immediately preceding the date of the filing of the [bankruptcy] petition" is not dischargeable in bankruptcy. 11 U.S.C. § 507(a)(8)(E)(ii).¹ See also 11 U.S.C. § 523(a)(1)(A). In this case, an employer failed to carry workers' compensation insurance, and an injured employee was compensated directly from a "Special Fund" maintained by the Industrial Commission of Arizona ("Commission"). Under Arizona law, an employer who has failed to carry insurance is required to reimburse the Special Fund for compensation paid to an injured employee, plus penalties and interest.

We have previously held that reimbursement of the Special Fund is an "excise tax" within the meaning of § 507(a)(8)(E)(ii). See Industrial Comm'n of Ariz. v. Camilli (In re Camilli), 94 F.3d 1330, 1333-34 (9th Cir.1996). In this case, we are asked to decide the date of the "transaction" on which this excise tax is based in order to determine the three-year period of non-dischargeability. We hold that a "transaction" is the act of employing a worker without carrying the required insurance when the worker is injured. The date of the transaction is thus the date on which the worker is injured. In so holding, we agree with the holding in Bliemeister v. Industrial Comm'n of Ariz. (In re Bliemeister), 251 B.R. 383, 394-96 (Bankr.D.Ariz.2000).

I

At all relevant times, Eric and Mary DeRoche ("the DeRoches") owned and operated the Desert Auto and Truck Service ("Desert Auto") in Mesa, Arizona. While working as a mechanic at Desert Auto, Rodney Sandry was injured on July 30, 1991. Sandry sought workers' compensation, and on October 3, 1991, the Industrial Commission of Arizona notified him that his claim had been accepted. Because the DeRoches did not carry workers' compensation insurance as required by Arizona law, Sandry was compensated out of the Arizona Special Fund, and the DeRoches were required to reimburse the Fund for that compensation, plus penalties and interest.

On October 24, 1991, the Commission sent a notice to the DeRoches, stating that it would pay compensation to Sandry based on an average monthly wage of $1,949.85. On November 4, 1991, the Commission sent an apparently superceding notice stating, "Compensation is being paid on a lessor [sic] wage pending finality of Average Monthly Wage." On November 22, 1991, the Commission sent a letter stating that it had paid compensation to Sandry from the Special Fund; that the DeRoches' current liability to the Fund totaled $4,037.65 (including a penalty of $500.00); and that "additional amounts may become payable in the future." On December 10, 1991, the Commission sent a notice of a "Continuing Award" stating that it was now assessing the DeRoches a total of $6,502.83 (including a penalty of $591.16), payable to the Fund.

On December 13, 1991, acting pro se, the DeRoches requested a hearing before the Commission, challenging its acceptance of Sandry's claim for compensation. They contended that Sandry was a "subcontractor" rather than an employee while working at Desert Auto (and hence not covered by workers' compensation), and, further, that Sandry had been injured before working at Desert Auto. On April 14, 1994, an Administrative Law Judge held on the merits that Sandry was entitled to workers' compensation, and that the DeRoches were liable for all the compensation paid by the Special Fund to date, plus penalties and interest.

On May 24, 1994, the Commission sent the DeRoches a notice of a "Supplemental Continuing Award," now totaling $20,541.82 (including a penalty of $1,867.44). This "Supplemental Continuing Award" was an assessment for a cumulative total that included the amount specified in the "Continuing Award" notice sent to the DeRoches on December 10, 1991. The DeRoches protested the "Supplemental Continuing Award" on June 3, 1994, and requested a hearing before the Commission.

A hearing was scheduled for November 29, 1994. However, on November 28, the day before the scheduled hearing, the DeRoches filed for Chapter 7 bankruptcy, and they did not appear for their hearing the next day. On November 30, an Administrative Law Judge dismissed the DeRoches' request for a hearing because of their failure to appear, and "deemed final" the "Supplemental Continuing Award" of May 24.

The Commission filed a "Proof of Claim" in the bankruptcy court for $22,421.52. This amount appears to have been the then-current cumulative total of the compensation the Special Fund had paid to Sandry, plus penalties and interest. The DeRoches were subsequently sent additional assessments for "Continuing Awards" in increasingly higher amounts, as compensation continued to be paid to Sandry out of the Special Fund. So far as appears from the record, the DeRoches have never paid any reimbursement to the Fund.

The DeRoches objected to the Commission's claim in the bankruptcy court, contending that their liability to the Fund was not an "excise tax" within the meaning of 11 U.S.C. § 507(a)(8)(E)(ii), and that it was therefore dischargeable. The bankruptcy court agreed. While the decision of the bankruptcy court was on appeal, we held in In re Camilli that reimbursement of the Arizona Special Fund by an uninsured employer is indeed an "excise tax." On remand to the bankruptcy court in light of In re Camilli, the DeRoches continued to object to the Commission's claim, now on the alternate ground that the excise tax in their case was subject to discharge because it was based on a "transaction" that had occurred more than three years before the date of their bankruptcy petition.

On summary judgment, the bankruptcy court disagreed with the DeRoches, holding that "each separate supplement and continuing award is a `transaction.'" Because notices of award had been sent to the DeRoches within three years of their bankruptcy filing, the bankruptcy court concluded that the Commission's claim was non-dischargeable. Under the holding of the bankruptcy court, the amount assessed in the most recent award issued by the Commission is non-dischargeable, even though that amount is a cumulative running total that includes payments made by the Special Fund more than three years before the petition. The district court affirmed.

We have appellate jurisdiction pursuant to 28 U.S.C. § 158(d). When reviewing a district court's decision on appeal from a bankruptcy court, we apply the same standard of review applied by the district court. See Parker v. Community First Bank (In re Bakersfield Westar Ambulance, Inc.), 123 F.3d 1243, 1245 (9th Cir.1997). We therefore review de novo the summary judgment of the bankruptcy court. See id.

We reverse and remand.

II

The issue in this case is what constitutes the "transaction" underlying the "excise tax" owed to the Arizona Special Fund. The issue is difficult because liability to a state fund for reimbursement of payments made to an injured employee is an unusual excise tax. More typical excise taxes are, for example, taxes on the sale of cigarettes or license taxes. See Black's Law Dictionary 585 (7th ed.1999) (defining "excise tax" as a "tax imposed on the manufacture, sale, or use of goods (such as a cigarette tax), or on an occupation or activity (such as a license tax or an attorney occupation fee)"). For such typical excise taxes, the "transaction" underlying the tax is obvious. It is a discrete act by the person or entity being taxed — for example, the sale of cigarettes or the application for a license.

The "transaction" in a workers' compensation case is less obvious. There are a number of events that, taken together, result in the ultimate assessment of the "excise tax" by the Special Fund. First, the employer must fail to carry workers' compensation insurance. Second, an employee must be injured. Third, the employee must make a claim for workers' compensation. Fourth, the Commission must make a determination that the worker is entitled to compensation. Fifth, the Fund must pay compensation to the injured worker. Finally, the Fund must assess the employer for reimbursement of the compensation paid to the worker. The assessment for reimbursement to the Fund, which comes at the end of this sequence of events, is the "excise tax" in question.

The Commission agrees with the result reached by the bankruptcy court. It successfully argued in the bankruptcy and district court, and argues in its brief to us, that each assessment by means of a notice of award, including each supplemental and continuing award, is a "transaction." Under this view, such an assessment is a "transaction" with respect to the entire amount of...