In re Lake Worth Generation, LLC

• Decision Date: 09 December 2004
• Docket Number: No. 03-31953-BKC-PGH.,03-31953-BKC-PGH.
• Citation: 318 B.R. 894
• Parties: In re LAKE WORTH GENERATION, LLC, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

318 B.R. 894

In re LAKE WORTH GENERATION, LLC, Debtor.

No. 03-31953-BKC-PGH.

United States Bankruptcy Court, S.D. Florida.

December 9, 2004.

Jordi Guso, John B. Hutton, Miami, FL, for Debtor.

ORDER AND OPINION DENYING PALM BEACH COUNTY TAX COLLECTOR'S MOTION TO DISMISS DEBTOR'S § 505 MOTION

PAUL HYMAN, JR., Bankruptcy Judge.

THIS MATTER came before the Court pursuant to John K. Clark, the Palm Beach County Tax Collector's (the "Tax Collector") Motion to Dismiss Debtor's Motion to Determine Tax Liability Pursuant to 11 U.S.C. §§ 105(a) and 505(a) and Motion to Abstain (the "Motion to Dismiss"). The Motion to Dismiss was prompted by Lake Worth Generation, LLC's (the "Debtor") Motion to Determine Tax Liability Pursuant to 11 U.S.C. §§ 105(a) and 505(a) (the "505(a) Motion").¹ The Tax Collector initially responded to the 505(a) Motion by means of a "Consolidated Pleading" objecting to the confirmation of the Debtor's Chapter 11 plan and disclosure statements and opposing the Debtor's § 505(a) Motion (the "Consolidated Pleading"). Closely on the heels of filing the Consolidated Pleading, the Tax Collector filed the Motion to Dismiss. The Debtor replied to the Motion to Dismiss ("the Reply"), and the Tax Collector replied to the Reply (the "Reply to the Reply"). Having reviewed the numerous motions, memoranda of law, and arguments of counsel, the Court concludes that it has the authority to determine Debtor's tax liability on personal property within the Debtor's estate under the facts presented in this case. Consequently, the Tax Collector's Motion to Dismiss is DENIED.

Factual Background

The Debtor is a Delaware limited liability company² formed to design, build, and operate a power generation plant in the city of Lake Worth, Florida. Construction on the project began in June 2001.³ While in the process of constructing the plant, the Debtor's financing for the project collapsed due in part to the financial woes of Enron, who guaranteed the financing. Despite the loss of Enron's financing, the Debtor continued construction on the plant until April 2002, when the Debtor could not obtain additional financing to continue the project. As a result, the Debtor commenced this case by filing a voluntary petition for relief under Chapter 11, title 11 of the United States Code on April 16, 2003.⁴

The Debtor continued to manage the affairs of Lake Worth Generation as a debtor in possession pursuant to §§ 1107 and 1108 of the Bankruptcy Code. With construction suspended and no financing or reorganization in sight, the Debtor sought to sell substantially all of its assets.⁵ The Debtor claims that it began marketing the project to prospective buyers in October 2002. The Debtor claims that it nearly reached an agreement with the Florida Municipal Power Agency ("FMPA") to sell the assets for $16,000,000 in June 2003.⁶ The deal with FMPA was not completed, however, and the Debtor continued to court prospective buyers. The Debtor's efforts were successful when CTG Capital Partners, LLC ("CTG"), agreed to purchase Lake Worth Generation's assets for $8,000,000, subject to the Debtor's receiving higher bids.⁷

On January 9, 2004, the Debtor filed an Emergency Motion for an Order Establishing Bidding Procedures, Approving the Form of the Asset Purchase Agreement and Scheduling Hearing Date to Consider Final Approval of the Sale (the "Bidding Procedures Motion"). Shortly thereafter, on January 16, 2004, the Tax Collector filed an objection to the Bidding Procedures Motion (the "Objection to Bidding Procedures Motion"). In the Objection to Bidding Procedures Motion, the Tax Collector objected that the sale of substantially all of the Debtor's assets free and clear of liens would delay payment of the property taxes, that the sale was in violation of state law, and that junior secured claimants would be satisfied before his senior lien. He also objected to the sale procedure because it allowed administrative and break-up fees to be paid without ensuring the satisfaction of the Tax Collector's property tax lien. He further objected to the asset purchase agreement because its terms were unclear. In the Objection, the Tax Collector also asserted that "[He] should not be compelled to submit to the jurisdiction of the Bankruptcy Court for determination and payment of the amount of outstanding property taxes due on the property to be sold."

On February 6, 2004, the Court entered an agreed order approving the asset purchase agreement with CTG as well as scheduling an auction sale of the Debtor's assets and preserving the Tax Collector's objections until the time of the auction sale.⁸ On March 8, 2004, the Tax Collector supplemented and renewed his objections to the sale on largely the same grounds raised in his Objection to the Bidding Procedures Motion. On March 14, 2004, an auction sale was conducted in the Bankruptcy Court. CTG was the high bidder at the auction, purchasing the assets for $10,050,000. The Court overruled the objection and entered an order authorizing the Debtor to sell substantially all of its assets (the "Sale Order"). Pursuant to the Sale Order, the Debtor was authorized and directed to pay $919,000 to Cochrane Engineering, Ltd., and $1,000,000 to the City of Lake Worth in full satisfaction, release, and discharge of their secured claims against the Debtor and the estate. In addition, the Debtor's counsel was ordered to retain the remaining proceeds in trust to satisfy all other claims including the Tax Collector's lien. The Sale Order also provided that all other liens, claims, interests, and encumbrances which were not paid at closing attached to the proceeds of the sale. Currently, the Debtor's attorney holds approximately $8.6 million in trust. According to its Amended Plan of Reorganization, the Debtor proposed to reserve cash from the sale of its assets for the purpose of paying the Tax Collector's asserted lien in full.

The Tax Collector has not filed a formal proof of claim in this case. Instead, he has requested affirmative relief by means of motions and objections to the Debtor's motions. The Tax Collector did, however, file two motions to extend the deadline in which to file a proof of claim. Since filing his first Motion to Extend Deadline to File Proof of Claim, the Tax Collector has maintained his assertion that he is entitled to full payment for the Debtor's unpaid taxes. In his "Motion to Compel Satisfaction of Statutory Liens, Alternatively, Award Adequate Protection to Ensure Satisfaction of Statutory Liens," (the "Motion to Compel Satisfaction of Liens") the Tax Collector asserts that the Debtor owes personal property taxes for tax year 2003 in the amount of $344,747.20, plus interest of 18% per annum and attorney's fees which were due and payable on April 1, 2004. According to the Tax Collector, the lien arises from a sworn tangible personal property tax return filed by the Debtor with the Palm Beach County Property Appraiser that asserts a value of the Debtor's property of $16,000,000. In addition, the Tax Assessor asserts that the Debtor owes unpaid personal property taxes for tax year 2004, which have not yet been liquidated but are similarly subject to a lien on the Debtor's property. In the Motion to Compel Satisfaction of Liens, the Tax Collector also moved for adequate protection to ensure satisfaction of the tax liens in the event that the Court does not abstain from deciding the amount of the Debtor's tax liabilities or compel the Debtor to satisfy the tax liens.

Throughout the series of motions and objections that the Tax Collector has filed, he has requested forms of relief including satisfaction of liens, adequate protection, and abstention from determining the taxes that the Debtor owes, at the same time that he asserts sovereign immunity. Since his first participation in this case with his Motion to Extend Deadline to File Proof of Claim, the Tax Collector has continued to assert sovereign immunity. He has continued this assertion through the Objection to the Bidding Procedures Motion, the Motion to Compel Satisfaction of Statutory Liens, the Consolidated Pleading, the Motion to Dismiss, and the Reply to the Reply to the Motion to Dismiss.

The issue before the Court is whether it has jurisdiction to determine the Debtor's state tax liability for ad valorem personal property taxes assessed for tax years 2003 and 2004. For the reasons that follow, the Court concludes that it has appropriate jurisdiction to determine the Debtor's tax liability.

Conclusions of Law

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (K), and (0). The Debtor filed its 505(a) Motion to value its personal property and resulting tax liability. The Tax Collector responded with his Motion to Dismiss.

The parties agree that the ad valorem personal property taxes assessed against the Debtor for tax years 2003 and 2004 are still outstanding. The parties also agree that the Debtor has not challenged these assessments in State court. Therefore, the prohibition of § 505(a)(2)(A) does not apply.⁹ The parties disagree, however, that the amount of the taxes assessed against the Debtor's equipment was appropriate. The Tax Collector asserts that the value of the assessed property as of the petition date is $16 million. The Debtor asserts that the value of the property should be approximately $10 million as is evidenced by the purchase price at the March 14, 2002 auction.

The parties have stipulated that the present Motion to Dismiss may be decided on strictly legal grounds. Therefore, the Court is only considering the jurisdictional question in this Opinion and Order, and not the correct valuation of the Debtor's property for tax purposes. The issue before the Court is whether it has jurisdiction to determine the value of the property in order to determine the amount of taxes on the property, and if the Court does possess...