In re EUA Power Corp.

• Citation: 184 BR 631
• Decision Date: 26 April 1995
• Docket Number: Bankruptcy No. 91-525-JEY. Adv. No. 95-1018-JEY.
• Parties: In re EUA POWER CORPORATION n/k/a Great Bay Power Corporation, Debtor. GREAT BAY POWER CORPORATION and Official Bondholders' Committee of EUA Power Corporation n/k/a Great Bay Power Corporation, Plaintiffs, v. TOWN OF SEABROOK, NH, Town of Hampton, NH and Town of Hampton Falls, NH, Defendants.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of New Hampshire

184 B.R. 631 (1995)

In re EUA POWER CORPORATION n/k/a Great Bay Power Corporation, Debtor.

GREAT BAY POWER CORPORATION and Official Bondholders' Committee of EUA Power Corporation n/k/a Great Bay Power Corporation, Plaintiffs, v. TOWN OF SEABROOK, NH, Town of Hampton, NH and Town of Hampton Falls, NH, Defendants.

Bankruptcy No. 91-525-JEY. Adv. No. 95-1018-JEY.

United States Bankruptcy Court, D. New Hampshire.

April 26, 1995.

Frank W. Getman Jr., Hale and Dorr, Boston, MA, for plaintiffs.

Daniel J. Callaghan, Devine, Millimet PA, Manchester, NH, Christopher T. Katucki, Goodwin, Proctor & Hoar, Boston, MA, for defendants.

Nicholas J. Scobbo Jr., Ferriter, Scobbo, Sikora, Singal, Caruso & Rodophele, P.C., Boston, MA, creditor.

MEMORANDUM OPINION

JAMES E. YACOS, Chief Judge.

The issue presented is whether the bankruptcy court has jurisdiction to determine whether the debtor should receive a tax refund or credit for pre-petition and post-petition property taxes which have been paid notwithstanding the debtor and/or the trustee's¹ failure to comply with state procedural requirements regarding filing a refund request. The parties agree that the property taxes assessed for the years in question were paid in full and on time. They also agree that no request for tax abatement was made within the time permitted by state law². Where they disagree is the legal significance of the failure to timely file a refund request.

The challenged taxes were assessed between 1990 and 1993 by the New Hampshire towns of Seabrook, Hampton and Hampton Falls in relation to the debtor's percentage ownership interest in the Seabrook Nuclear Power Station³. The debtor is one of twelve New England utility companies who jointly own the Seabrook Station as tenants in common⁴. Each year, the towns assess the value of the real property and improvements related to the portion of power station located in their respective town for real estate tax purposes. That value is used as the basis to determine the real estate tax due which is then allocated among the joint owners based upon their percentage interest in the power station. Each of the joint owners of the Seabrook Station receive a separate yearly property tax bill for their portion of the property tax due.

EUA Power Corporation n/k/a Great Bay Power Corporation owns a 12.1324% interest in the power station. Great Bay Power sells its percentage interest in the electricity generated by the power station to the wholesale market. In contrast, the majority of the remaining joint owners sell their percentage interest of the electricity generated to the retail market for prices that exceed prices in the wholesale market. In determining the amount of the yearly tax bill, each town values the property as a whole then bills the taxes to each joint owner based on their straight percentage interest in the station not accounting for any possible variance in the value of each joint owner's interest due to the difference in their market base. Until the filing of the present § 505 complaint for determination of taxes, neither the debtor or the Bondholders Committee has ever challenged this method of allocation⁵.

EUA Power Corporation n/k/a Great Bay Power Corporation filed a petition for relief under chapter 11 of the Bankruptcy Code in February of 1991. The Bondholders Fifth Amended Plan of Reorganization was confirmed on March 3, 1993. There was a subsequent modification of the plan confirmed May 5, 1994 and an amendment to the modified plan confirmed November 4, 1994. The plan has been consummated and the estate has been vested in the reorganized debtor pursuant to § 1147 of the Bankruptcy Code.

On February 8, 1995, Great Bay Power Corporation and the Official Bondholders' Committee of EUA Power Corporation (n/k/a Great Bay Power Corporation) filed the referenced adversary complaint against the defendant New Hampshire towns of Seabrook, Hampton and Hampton Falls pursuant to 11 U.S.C. § 505 for determination of Great Bay's proper and lawful property tax liability to the Towns for the tax years 1990 through 1993 and to order the towns to refund or credit $5,829,358 to Great Bay Power Corporation for overpayment of property taxes for those years.⁶

The complaint contends that the towns overvalued and disproportionately assessed the debtor's property interest in the power station resulting in a gross overpayment in property taxes from 1990 through 1993. The Court first became aware of the Bondholders' Committee's intention to request a § 505 tax determination during the confirmation proceedings.⁷ The defendant towns have filed a motion to dismiss or in the alternative to abstain from exercising jurisdiction over this adversary proceeding.

DISCUSSION

Section 505(a)(1) grants the bankruptcy court broad discretionary power to determine the tax liabilities, fines and penalties of a debtor. The provision reads as follows:

(a)(1) Except as provided in paragraph (2) of this subsection, the court may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction.

11 U.S.C. § 505(a)(1). Section 505(a)(2) lists two limitations on this broad grant of power, one of which is applicable to this case. The two limitations are as follows:

(2) The court may not so determine —

(A) the amount or legality of a tax, fine, penalty, or addition to tax if such amount or legality was contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction before the commencement of the case under this title; or

(B) any right of the estate to a tax refund, before the earlier of —

(i) 120 days after the trustee properly requests such refund from the governmental unit from which such refund is claimed; or

(ii) a determination by such governmental unit of such request.

11 U.S.C. § 505(a)(2) (emphasis added). The plaintiff in this case is requesting the determination of a tax refund⁸ thus, § 505(a)(2)(B) applies.

Section 505(a)(2)(B)

The argument in this case centers around what Congress meant when it said the trustee must "properly request" a refund from the governmental unit from which the refund is claimed. The towns contend that a refund request is only properly made by the trustee when it is when it is done within the time limitations imposed by state law. In other words, the failure to "properly request" abatements from the defendant towns for the tax amount assessed within the two months required by New Hampshire state law effectively precludes the request to the bankruptcy court for a § 505 determination of the tax refunds under the statute.

The plaintiff counters that § 505(a)(2)(B)(i) governs only when the bankruptcy court may resolve tax disputes not whether it may do so. The plaintiff argues that a "proper" request is not necessarily a "timely" request and the state statutory time limitations to request a refund has no effect on the jurisdiction of the bankruptcy court to make a § 505 determination of the taxes due.

After review of the case law and the arguments of the parties, the Court will grant the motion to dismiss on the basis that this Court has no jurisdiction to consider and determine the question of a property tax refund where a trustee or a debtor-in-possession⁹ did not request an abatement or refund with the applicable taxing agency within the time required by state law. In re Cumberland Farms, 175 B.R. 138 (Bankr.D.Mass.1994); In re St. John's Nursing Home, Inc., 169 B.R. 795 (D.Mass.1994); Matter of Qual Krom South, Inc., 119 B.R. 327 (Bankr. S.D.Fla.1990); see also In re Millsaps, 133 B.R. 547 (Bankr.M.D.Fla.1991) (because bankruptcy court is precluded from entertaining claim for refund by virtue of debtor's failure to satisfy state imposed conditions precedent to obtain a refund, it is unnecessary to determine whether the bankruptcy court has subject matter jurisdiction); see also In re Graham, 981 F.2d 1135 (10th Cir.1992) (trustee's filing of administrative claim for refund was nonwaivable jurisdictional prerequisite to bankruptcy court's determination of debtors' right to tax refund); but see In re Ledgemere Land Corp., 135 B.R. 193 (Bankr.D.Mass.1991) (reasoning later vacated by In re Cumberland Farms, supra). In making its decision, the Court is particularly persuaded by the legislative history of § 505 and the bankruptcy court's historically limited jurisdiction to redetermine the estate's ability to obtain a refund for paid taxes. The legislative history of § 505 is thoroughly discussed in the reasoning and analysis of Judge Queenan in Cumberland Farms which this Court will hereby adopt.

In addition, the Court notes that the 1978 Bankruptcy Code was the first time the bankruptcy court was granted any power whatsoever to determine the legality of a paid tax claim. Until that point, the court had power to determine only unpaid tax liabilities. If Congress intended to significantly extend the bankruptcy court's jurisdiction to include the redetermination of paid taxes by preempting the state law time limitations, as the plaintiff suggests, it would have more clearly expressed its intent to do so. See Greenwood Trust Co. v. Com. of Mass., 971 F.2d 818, 822 (1st Cir.1992), cert. denied, ___ U.S. ___, 113 S.Ct. 974, 122 L.Ed.2d 129 (1993) (general discussion of rules governing federal preemption of state law).

There are only two cases dealing specifically with tax refunds or credits which arguably support the plaintiff's interpretation of the statute¹⁰. The first, In re AWB Associates, G.P., 144 B.R. 270 (Bankr.E.D.Pa.1992), supports the plaintiff's position only in result. In AWB Associates, the Court found it had jurisdiction to determine whether the debtor was entitled to refunds of unchallenged pre-bankruptcy tax payments to offset the...