In re: Lazar
| Citation | 237 F.3d 967 |
| Decision Date | 12 January 2001 |
| Docket Number | Nos. 97-56635,s. 97-56635 |
| Parties | (9th Cir. 2001) In re: GARY LAZAR; DIVINE GRACE LAZAR; CALIFORNIA TARGET ENTERPRISES, INC.; ALAMEDA MANAGEMENT COMPANY, INC.; LIBERTY MARKETING COMPANY, INC.; P & M SERVICE STATIONS, INC.; PRONTO MARKETING COMPANY, INC.; MISSION MARKETING GROUP, INC.; GOOD GUYS LUBE N' TUNE,INC.; CHALLENGE MARKETING CO., INC.; CALIFORNIA TARGET SUPPLY, INC. Debtor. GEORGE E. SCHULMAN, Chapter 7 Trustee, Appellant-Cross-Appellee, v. STATE OF CALIFORNIA; CALIFORNIA STATE WATER RESOURCES CONTROL BOARD; CALIFORNIA UNDERGROUND STORAGE TANK CLEANUP FUND; JOHN P. CAFFRE; JAMES M. STUCHATER; MARK DEL PEIRO; MARY JANE FORSTER; JOHN W. BROWN, Appellees-Cross-Appellants. 97-56636 97-56638 |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
[Copyrighted Material Omitted]
[Copyrighted Material Omitted] Elmer Dean Martin, III, Esq., Diamond Bar, California, for the appellants-cross-appellees.
David Gould, McDermott, Will & Emery, Los Angeles, California, for the appellants-cross-appellees.
Donald Robinson, Deputy Attorney General, Los Angeles, California, for the appellees-cross-appellants.
William Abbey, Deputy Attorney General, Los Angeles, California, for the appellees-cross-appellants.
Mark Browning, Assistant Attorney General, Bankruptcy & Collections Division, Austin, Texas, for amici curiae states.
John R. Ellis, Senior Assistant Attorney General, Seattle, Washington, for amici curiae states.
Appeal from the United States District Court for the Central District of California Dickran M. Tevrizian, District Judge, Presiding. D.C. Nos.CV-97-04724-DT CV-97-08324-DT LA 96-1575 SB
Before: James R. Browning, Sidney R. Thomas, and Kim McLane Wardlaw, Circuit Judges.
In these consolidated bankruptcy appeals, the California State Water Resources Control Board (the "State Board") and the California Underground Storage Tank Cleanup Fund (the "Fund") challenge the district court's orders denying them Eleventh Amendment immunity. In particular, the State Board contends that it is an arm of the state of California, that it did not waive its Eleventh Amendment immunity, and that 11 U.S.C. 106 does not validly abrogate such immunity. The Fund raises a narrower Eleventh Amendment question, arguing merely that it is an "arm of the state." The State Board also appeals the district court's order ruling that abstention is not appropriate, under 28 U.S.C. 1334(c), and, on crossappeal, George E. Schulman, the bankruptcy trustee, (the "Trustee") seeks reversal of the district court's order finding that fees payable to the Fund are "taxes" for bankruptcy purposes, under 11 U.S.C. 507(a)(8). We affirm in part, reverse in part, dismiss in part, and remand for further proceedings.
More precisely, we hold that while the State Board is an arm of the State of California, it has waived its Eleventh Amendment immunity in the Trustee's mandamus action. In the Fund's appeal, we apply our five-factor test and hold that the Fund is an "arm of the state" and therefore entitled to invoke Eleventh Amendment immunity. Finally, we dismiss the State Board's abstention appeal and the Trustee's crossappeal for lack of jurisdiction.
On July 27, 1992, upon the seizure by the State of California of the bank accounts held by Divine Grace Lazar and Gary Lazar (the "debtors" or the "Lazars") for nonpayment of gasoline taxes, including payments imposed for contribution to the Fund, the Lazars voluntarily petitioned for Chapter 11 reorganization on behalf of themselves and eight of their corporate entities.1 The corporate cases were substantively consolidated and ordered jointly administered with the Lazars' personal bankruptcy proceedings. George Schulman was appointed as Chapter 11 trustee and, on September 14, 1994, when the cases were converted to Chapter 7, was appointed as trustee of the Chapter 7 estate.
The Lazars and their entities owned, operated and leased some 200 retail gasoline stations throughout Southern California in the 1980s and early 1990s. In May 1992, the Los Angeles County Grand Jury returned an indictment against the Lazars, their corporate entities, and certain other individuals for environmental crimes resulting from their operation of the gas stations, including illegal disposal of hazardous wastes and falsification of tank test results related to leaking gas tanks at the Lazars' mostly older gas stations. In September 1994, the Lazars pleaded nolo contendere to the charges of conspiracy and falsification of the underground storage tank test results, and, on February 22, 1995, the state court sentenced the Lazars to eight years in custody and fined their companies more than $400 million.
The state criminal charges arose from violations of the Barry Keane Underground Storage Cleanup Trust Fund Act (the "Act"), enacted by the California legislature in 1989 to address the problem of leaking petroleum underground storage tanks and the threat they pose to public health and safety and the environment. See Cal. Health & Safety Code 25299.10 (West 1999 & Supp. 2000). The Act imposes duties on owners or operators of underground storage tanks, including the duty to investigate the condition of the tanks, to clean up leaks, and to establish evidence of financial responsibility for taking corrective action and compensating others for damage caused by the leaks. The Act established the Fund, a reimbursement program administered by the State Board that is used by small gasoline purveyors to comply with the Resource Conservation and Recovery Act, 42 U.S.C.SS 6901 et seq. (1994), which requires these small gasoline purveyors to demonstrate financial ability to pay clean-up claims for damages caused by their leaking underground storage tanks.
The Fund is financed by a "fee" imposed on underground storage tank owners for each gallon of gasoline or other petroleum product stored in a permitted tank. Owners and operators of petroleum underground storage tanks may file a claim against the Fund to recover costs associated with corrective action taken in response to unauthorized releases. Cal. Health & Safety Code 25299.54 (West 1999 & Supp. 2000). Before filing for bankruptcy on July 27, 1992, California Target Enterprises, one of the Lazar companies, submitted twenty claims against the Fund to the State Board. The Trustee became the holder of the twenty claims as a result of his appointment as trustee of the bankruptcy estate.
In November 1993, the Controller of the State of California (the "Controller") submitted proofs of claims for unpaid taxes against California Target Enterprises totaling in excess of $31 million in the bankruptcy proceedings. The California State Board of Equalization (the "BOE") submitted at least five proofs of claims for unpaid taxes totaling in excess of $13 million in the bankruptcy proceedings during the years 1993 through 1995. An unspecified portion of this over $44 million in claims is for taxes payable to the Fund.
The twenty reimbursement claims were denied on November 3, 1994, by David Deaner, a member of the State Board's staff and the Manager of the Fund ("Final Staff Decision"). The November 3 letter cited misconduct by the Lazars as the basis for denial. The Trustee filed an appeal of the Final Staff Decision, which was summarily denied by Harry Schueller, Chief of the State Board's Division of Clean Water Programs, in a letter dated March 9, 1995 ("Final Division Decision"). The Trustee then filed an Amended Petition for Board Review of Final Division Decision ("Amended Petition") and a Request for Hearing and Oral Argument ("Request for Hearing"). The Amended Petition and Request for Hearing were deemed denied by operation of law 270 days after the State Board received them. See Cal. Code Regs. tit. 23, 2814.3(d) (2000).
Having exhausted his administrative remedies, the Trustee filed a Petition for Peremptory Writ of Administrative Mandamus or Other Appropriate Writ against the State Board in the Superior Court of the State of California for the County of Los Angeles on March 13, 1996 (the "Mandamus Adversary"). In the Mandamus Adversary, the Trustee sought "a writ requiring the [State] Board to reinstate the Trustee's claims against the [Fund], pay the claims in accordance with the statutory prioritization scheme, and thereby to permit the Trustee to use the [Fund] as a mechanism for demonstrating financial responsibility for operation of underground storage tanks in accordance [with] the provisions of state and federal law." The Trustee also sought "actual damages " in excess of $2.2 million, "reasonable attorneys fees," and "such other and further relief as appears appropriate under the circumstances." On March 22, 1996, the Trustee filed a Notice of Removal of the Mandamus Adversary to the United States Bankruptcy Court for the Central District of California, pursuant to 28 U.S.C. 1452.2 In response, the State Board filed a Motion for Remand or in the Alternative Abstention and Remand. The State Board argued that: (1) the bankruptcy court's subject matter jurisdiction over the action was foreclosed by the Eleventh Amendment; (2) the bankruptcy court lacked subject matter jurisdiction under 28 U.S.C. 1452(a) because the action concerned enforcement by the State of California of its police or regulatory powers; and (3) under 28 U.S.C. 1334(c)(2), the bankruptcy court must abstain from hearing the action and remand it to state court, or, in the alternative, the bankruptcy court should abstain and remand in the interests of justice, comity and respect for state law, under 28 U.S.C. 1334(c)(1).
In an opinion dated September 3, 1996, the bankruptcy court rejected each of the State Board's arguments and denied the motion. See Schulman v. California State Water Resources Control Bd. (In re Lazar), 200 B.R. 358 (Bankr. C.D. Cal. 1996). It found that the Mandamus Adversary was not a...
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