In re Gundry Glass, Inc.
| Decision Date | 04 January 2001 |
| Docket Number | Bankruptcy No. 98-5-2674-JS. Adversary No. 99-5445-JS. |
| Citation | 257 BR 422 |
| Parties | In re GUNDRY GLASS, INC., Debtor. Gundry Glass, Inc., and FINOVA Capital Corp., Plaintiffs, v. The Mayor and City Council of Baltimore and the Internal Revenue Service. |
| Court | U.S. Bankruptcy Court — District of Maryland |
Irving E. Walker, Miles & Stockbridge, P.C., Baltimore, MD, for FINOVA Capital Corp.
Mary F. Keenan, Assistant Solicitor, Baltimore, MD, for Mayor and City Council of Baltimore.
Bradley C. Plovan, Office of the U.S. Attorney, Baltimore, MD, for IRS.
Gary R. Greenblatt, Mehlman & Greenblatt, LLC, Baltimore, MD, for Gundry Glass, Inc.
Upon cross motions for summary judgment, this Court is called upon to decide two questions of law, namely whether the debtor and FINOVA Capital Corporation ("FINOVA") may avoid a prepetition tax lien of the Mayor and City Council of Baltimore (the "City") for unpaid personal property taxes, and whether the said municipal tax lien primed an earlier deed of trust lien of FINOVA upon proceeds of the debtor's real property that was sold free and clear of liens. A tax lien of the Internal Revenue Service is not the subject of this opinion. There are no material facts in dispute because the parties, including the IRS, joined in a stipulation of material facts. For the reasons stated, the plaintiffs' motion for summary judgment will be granted.
1. On February 25, 1998, Gundry Glass, Inc., filed a voluntary Chapter 11 bankruptcy petition in this Court. The debtor in possession managed a psychiatric care facility located in the City of Baltimore. Since the filing, it has been engaged in the winding down of its business affairs and the liquidation of its assets.
2. On February 17, 1999, pursuant to this Court's Amended Consent Order Authorizing Sale of Assets Free and Clear of Liens, Claims and Interests P. 128, entered on January 20, 1999, the debtor sold its Certificate of Need and its fee simple interest in the Gundry Glass Hospital Campus free and clear of claims, liens and encumbrances to the Sheppard and Enoch Pratt Foundation, Inc.
3. On June 7, 1999, the plaintiffs filed the instant complaint seeking (1) the avoidance of a purported lien of the Mayor and City Council of Baltimore against the proceeds of sale pursuant to Sections 544 and 545 of the Bankruptcy Code and (2) a determination that the plaintiff FINOVA Capital was entitled to the distribution of certain of the sale proceeds.
4. Pursuant to a promissory note dated September 20, 1995, FINOVA extended financing to the debtor in the original principal amount of $4,625,000. On the same date, FINOVA obtained security for the note by a mortgage, assignment of leases, rents and other income and security agreement recorded among the Land Records of Baltimore City at Liber SEB 5123, folio 032. The real property securing the mortgage is located in the City of Baltimore and is identified as 2 North Wickham Road, which comprised 20.666 acres. Pursuant to the assignment of leases, rents, guarantees, profits, issues and other income, the debtor assigned to FINOVA all leases, subleases, licenses, rental contracts, management agreements and other agreements relating to the use, operation, management or occupancy of 2 North Wickham Road and all rents, issues, profits, income, accounts receivable and proceeds due or to become due from the 2 North Wickham Real Property. On October 2, 1995, FINOVA perfected these security interests by filing a financing statement with the Maryland State Department of Assessments and Taxation.
5. The debtor failed to pay Federal withholding taxes before it filed its bankruptcy petition. On the petition date, the debtor owed more than $2.7 million in Federal withholding taxes. On February 17, 1998, the IRS filed a notice of Federal tax lien in the Circuit Court for Baltimore City.
6. The debtor also failed to pay its prepetition personal property taxes to the City of Baltimore. On the petition date, February 25, 1998, the debtor's personal property taxes due the City were in arrears for the tax periods 1995 through 1998, in the total amount of approximately $31,338. The City did not file a notice of tax lien for personal property taxes in the Circuit Court, but relied upon a lien reporting system that it routinely employed. Personal property taxes for a particular tax year appear in the City's lien reporting system on the date the Maryland State Department of Assessments and Taxation certifies the assessment for the taxpaying entity (the "Assessment Certification Date"). The Assessment Certification Date varies from tax year to tax year. Personal property taxes are due and payable to the City of Baltimore on July 1 of each tax year. The Assessment Certification Dates, due dates and amount of personal property tax for each of the tax years for which the City alleged that the debtor is liable are summarized below:
Tax Year Amount of tax Assessment Due Date
(Not including Certification Date
interest.)
7/1/95 — 6/30/96 $15,406.56 October 30, 1996 July 1, 1995
7/1/96 — 6/30/97 $ 7,503.80 July 15, 1996 July 1, 1996
7/1/97 — 6/30/98 $ 7,592.13 July 1, 1997 July 1, 1997
7/1/98 — 6/30/99 $15,106.39 September 21, 1998 July 1, 1998
7. On the date of the petition, February 25, 1998, the debtor was in default on its payments to FINOVA, with outstanding indebtedness in excess of $4.5 million. Nevertheless, FINOVA agreed to extend postpetition financing to the debtor, pursuant to the terms of a consent order P. 24 entered March 13, 1998, and extended by Order entered August 6, 1998 (the "DIP Financing Order") P. 96.
8. Pursuant to the DIP Financing Order, FINOVA was granted a first lien on all real and personal property and assets of the debtor and an administrative priority claim under 11 U.S.C. § 364(c)(1) to the extent of the postpetition loans. As of July 1, 1999, FINOVA held an outstanding prepetition claim in excess of $2.3 million. In addition, FINOVA held a postpetition priority secured claim for an amount in excess of $360,000 for funds advanced postpetition pursuant to the DIP Financing Order.
9. On March 31, 1998, the debtor filed its schedules P 39. The only real property that the debtor listed in Schedule A was identified as "2 North Wickham Road." The statutory tax lien of the Director of Finance, Baltimore City, was scheduled by the debtor in Schedule D, Creditors Holding Secured Claims, as to "2 North Wickham Road, Baltimore, Maryland 21229" in the amount of $31,338.67.
10. However, on April 2, 1998, when the City filed Claim No. 35 in the amount of $41,680.05., it was not alleged to be secured by the 2 North Wickham Road property titled in the name of the debtor, but rather secured by statutory tax liens on 2 South Wickham Road, owned by "Gundry Glass Properties Limited Partnership" for unpaid real property taxes in the amount of $1,722.94 and unpaid water bills in the amount of $106.01; 5002 Frederick Avenue, owned by "Gundry Glass, Inc." for unpaid personal property taxes in the amount of $31,787.79, and water charges of $1,732.72; and 110 South Wickham Road, titled in the name of "Gundry Glass Properties, Inc.", for unpaid real property taxes in the amount of $1,978.70.
11. On December 29, 1998, this Court entered a Consent Order Authorizing Sale of Assets Free and Clear of Lien, Claims and Interests, authorizing the debtor to sell its real property known as 2 North Wickham Road, Baltimore, Maryland, free and clear of claims, liens, encumbrances and interests, to Sheppard and Enoch Pratt Foundation, Inc., or its designee. Prior to closing the sale, the parties determined that the debtor's hospital campus, which the purchaser intended to buy as a whole and was thought to consist of only 2 North Wickham Road, actually consisted of four parcels, namely, 2 North Wickham Road, 5002 Frederick Avenue, 110 South Wickham Road and 2 South Wickham Road.
12. The Land Records of Baltimore City indicated that title to 2 South Wickham Road was held by Gundry Glass Properties Limited Partnership, a non-debtor entity. Accordingly, the parties submitted an Amended Consent Order Authorizing Sale of Assets Free and Clear of Liens, Claims and Interests P. 128, entered on January 20, 1999. The parties agreed to apportion the $800,000 proceeds of sale of the debtor's hospital campus to the parcels held by the debtor as follows: (a) $23,300.00 for the purchase of 5002 Frederick Avenue; $26,400.00 for the purchase of 110 South Wickham Road; and $750,300.00 for the purchase of 2 North Wickham Road.
13. Prior to closing, the purchaser obtained a lien certificate from the City of Baltimore for each of the debtor's properties. The lien certificates for 2 North Wickham Road and 5002 Frederick Avenue showed personal property taxes due in the total amount of $52,788.20 for the 1995-96 through 1998-99 tax years. The lien certificate for 110 South Wickham Road showed no outstanding personal property taxes due.
14. On February 17, 1999, the sale of the debtor's real property closed, but the proceeds of sale were not fully distributed because of the existence of multiple claims. Accordingly, some sale proceeds were placed in escrow. Currently the parties have escrowed $88,011.43, consisting of the net proceeds of the sale of 110 South Wickham and 5002 Frederick Avenue in the amount of $35,223.23 and $52,788.20, representing the amount of personal property taxes due the City for 1995-1999 on its lien certificates for 2 North Wickham Road and 5002 Frederick Avenue.
15. The Internal Revenue Service filed a notice of tax lien one week prior to the filing of the debtor's bankruptcy petition, claiming a prior lien against the proceeds of the sale...
To continue reading
Request your trial