In re Henderberg
| Decision Date | 12 June 1989 |
| Docket Number | Bankruptcy No. 87-00041. |
| Parties | In re Gary E. HENDERBERG, Janice M. Henderberg, Debtors. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Northern District of New York |
Brett W. Martin, Utica, N.Y., for debtors.
Paul Pozefsky, Asst. County Atty., Utica, N.Y., for County of Oneida.
Paul Skavina, Asst. Corp. Counsel, Rome, N.Y., for City of Rome.
MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
The Court has before it an objection to tax claims.
Gary E. and Janice M. Henderberg ("Debtors"), dairy farmers on the southwest outskirts of Rome, County of Oneida, New York, filed a voluntary petition in bankruptcy pursuant to Chapter 11 of the Bankruptcy Code, 11 U.S.C.A. §§ 101-1330 (West 1979 & Supp.1989) ("Code"), on January 13, 1987. On March 9, 1987, Debtors filed schedules of assets and liabilities which, in Schedule A-1, listed the Rome City Treasurer ("Rome") and the Oneida County Commissioner of Finance ("Oneida County" or "the County") as having priority tax claims in the amount of $800.00 and $11,000.00 respectively. Both municipalities were listed on the bankruptcy mailing matrix.
On July 7, 1987, the claims bar date, Rome filed a priority proof of claim in the amount of $7,098.97 for seven properties, specifically deleting that part of the form referring to the claim's status as secured while noting tax liens. It attached copies of tax search certificates, dated March 18 and 24, 1987, "covering unpaid city and school taxes, special assessments and water rents" for the years 1985 through 1987 and 1987 County taxes, with interest and penalties accruing through the month of March 1987. Oneida County did not file any proof of claim.
The Debtors filed their Chapter 11 Disclosure Statement and Plan on June 7, 1988. The Disclosure Statement, after a hearing on notice to all creditors and parties in interest on April 15, 1988, was approved by Order entered September 1, 1988.
Under Article II of the Plan, entitled "Classification of Claims" and containing eight classes, the tax claims of Rome and Oneida County were listed in Class 1 as "allowed real property tax claims having priority under the provisions of 11 U.S.C. section 507(a)(7)(B)." Class 8 under the Plan, entitled "Allowed General Unsecured claims," was comprised of "all unsecured creditors, other than priority Class 1 creditors and the Class 7 lessor" and included "real property tax claims not accorded priority status, if any."
Article 1 defined "Allowed Claims" as "claims listed by the debtors in the schedules filed with the court which are not identified as disputed, contingent, or unliquidated, or claims properly filed by creditors with the court to which an objection has not been filed, or claims approved and allowed by a final order of the court."
Article III of Debtors' Plan provided that the allowed priority claims under Code § 507(a)(7)(B) of Oneida County and Rome for pre-petition property taxes of approximately $11,000.00 and $6,988.24, respectively, would "be paid in full with interest at the annual rate of nine per cent (9%) from the Confirmation Date" in monthly increments of $570.00 and $360.00, respectively, commencing on the twenty-fifth day of the eighteenth month after the entry of a final confirmation order. Aside from proposing full payment of unclassified administrative claims to commence on or within twenty-five days of the Confirmation Date, the Plan set forth payment to Classes 2 through 6, composed of holders of allowed consensual secured claims who were to retain their liens until full payment, to commence in the sixth month following the entry of a final order confirming the Plan. Class 8 was to receive its twenty percent distribution, with no accruing interest, in three annual installments beginning on the first day of the thirteenth month after the entry of a final order confirming the Plan.
Article V of the plan declared that "the provisions of the Plan shall become effective and binding on the date of entry of a final order confirming the Plan." It further provided for the extinguishment, discharge and cancellation of all judgment liens, "all mortgages, security interests and similar consensual liens" upon the Plan's confirmation.
Indicating an unpaid principal amount of $6,988.24, Rome voted for acceptance of the Debtors' Plan on October 13, 1988.1 Oneida County neither voted for or against the Plan, nor filed an objection to the Plan. After a hearing on October 21, 1988, noticed to all creditors and parties in interest, the Court issued an Order of Confirmation of the Debtors' Chapter 11 Plan the same day. No appeals were filed.
Pursuant to Article V of the Plan, in which the Debtors reserved the right to object within sixty days of the Confirmation Date to any claim filed or listed in their case, the Debtors filed an Objection To Tax Claim Of The City Of Rome and County Of Oneida ("Objection") on October 28, 1988 pertaining to seven parcels of real property for the years 1985 through 1987. In their Objection at paragraph eleven, the Debtors stated that Rome's claim of $7,098.97 should be modified so that $6,276.25 would receive Class 1 priority status, $599.09 would be included in Class 8, and to expunge the remaining $224.33, representing a post-petition penalty in violation of Code § 362(a).2
Paragraphs twelve, thirteen and fourteen of the Debtors' Objection further provided that Oneida County's claim for $11,000.00 should be modified so that only $4,395.44 would maintain Class 1 status for 1986 taxes, with $4,421.08 listed in Class 8 for 1985 taxes, and the remainder of the claim — penalties, interest, and advertising costs — excluded since voided by an Order of this Court, entered October 17, 1988, as violative of the automatic stay, unless the County provided proof to the contrary prior to the hearing. The Debtors also excluded 1987 County taxes due to their inclusion by Rome in its proof of claim and attached a breakdown of each municipality's tax claims by parcel and category.
Rome and Oneida County disputed the Debtors' contentions and filed answering affidavits on November 23, 1988 and November 25, 1988, respectively. After a hearing November 29, 1988, decision was reserved, memoranda of law were to be filed, and the matter was finally submitted on January 20, 1989.
The Debtors argue that Rome and Oneida County were treated as unsecured priority creditors pursuant to Code § 507(a)(7)(B) in the Chapter 11 Plan and, therefore, any statutory liens which were created pre-petition pursuant to New York Real Property Tax Law § 902 (McKinney 1972 & Supp.1989) ("NYRPTL") did not survive confirmation of the Plan and its res judicata effect. The Debtors maintain that the rights of the creditors are defined within the terms of the confirmed Plan and only treated Rome and Oneida County in two classes. Under the Plan, priority tax claims which arise under Code § 507(a)(7)(B) are designated as Class 1 claims and are scheduled to be paid in full, while real property tax claims which do not fall under Class 1, are relegated to Class 8 and a twenty percent distribution.
As noted, the Debtors further claim that the penalties claimed by Rome were assessed post-petition and, therefore, are void under the automatic stay provision found in Code § 362(a), as are those portions of Oneida County's claim comprising penalties, interest, and advertising costs and upheld by an Order.
In its answering affidavit, Rome asserted that it had a statutory tax lien on the Debtors' real property pursuant to NYRPTL § 902 which could only be avoided under Code § 545. Thus, Rome maintained that the confirmation of the Plan could not affect its statutory tax lien, which survived whether or not provided for in the Plan, since it must either formally or expressly waive, cancel or impair its lien. Therefore, the Debtors should pay the full amount of the claim listed in the Plan.
Rome further contended that it relied on the representations in the Disclosure Statement and Plan that its claim would be paid in full in voting to accept the Plan. It sought an order declaring that its tax lien to secure real property taxes of $6,988.24, plus interest at nine percent, continued until repayment of those taxes.
In its answering affidavit, Oneida County stated simply that its claim under the Plan, which totalled $11,000.00, was an estimate by the Debtors, and that the sum actually due and owing to the County by the Debtors was in the amount of $17,549.33. The County of Oneida did not contest denial of its status as lien creditor or the bifurcation of its claim between Classes 1 and 8.
I. What is the effect of the confirmation of a Chapter 11 Plan on the status of pre-petition tax liens which are treated as both unsecured and priority unsecured claims under the Plan, where the alleged lien creditors were given notice of all of the bankruptcy proceedings leading up to and including confirmation of the Plan, and did not object?
II. Can Debtors bifurcate tax claims post-confirmation under the terms of their Chapter 11 Plan?
This Court has jurisdiction over this core proceeding pursuant to 28 U.S.C.A. §§ 1334(a), 157(a), 157(b)(1), and 157(b)(2)(B), (K), and (O) (West Supp.1989). This motion was decided in accordance with Bankruptcy Rules ("Bankr.R.") 3003, 3007, 3020, 7052 and 9014.
The essential dispute in this case involves the Plan's treatment of the claims of Rome and the County and the Debtors' ability to subsequently object to and bifurcate the tax claims seven days after confirmation, as reserved in Article V of the Plan itself. Any coinciding determination of the Debtors' tax liability is within the jurisdiction of this Court. See Code § 505(a); Brandt-Airflex Corp. v. Long Island Trust Co., N.A. (In re Brandt-Airflex Corp.), 843 F.2d 90, 93-94 (2d Cir.1988).
In a Chapter 11 case, "subject to compliance with the...
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