In re Ledgemere Land Corp., Bankruptcy No. 90-40962-JFQ to 90-40968-JFQ

• Decision Date: 03 December 1991
• Docket Number: Bankruptcy No. 90-40962-JFQ to 90-40968-JFQ,Adv. No. 91-4093,91-4094.
• Citation: 135 BR 193
• Parties: In re LEDGEMERE LAND CORP., Ledgemere Condominium Corp., Econdo Manufacturing Corp., Greenhouse Acres Development, Inc., Marine Charter and Storage Ltd., Inc., H.A. Fafard & Sons Construction, Inc., Howard A. Fafard, Debtors. LEDGEMERE LAND CORPORATION, Ledgemere Condominium Corporation, Marine Charter and Storage Ltd., Inc., Howard A. Farard, Plaintiffs, v. TOWN OF ASHLAND, Defendant. LEDGEMERE LAND CORPORATION, Ledgemere Condominium Corporation, Marine Charter and Storage Ltd., Inc., Howard A. Fafard, Plaintiffs, v. TOWN OF MILFORD, Defendant.
• Court: U.S. Bankruptcy Court — District of Massachusetts

135 B.R. 193 (1991)

In re LEDGEMERE LAND CORP., Ledgemere Condominium Corp., Econdo Manufacturing Corp., Greenhouse Acres Development, Inc., Marine Charter and Storage Ltd., Inc., H.A. Fafard & Sons Construction, Inc., Howard A. Fafard, Debtors.

LEDGEMERE LAND CORPORATION, Ledgemere Condominium Corporation, Marine Charter and Storage Ltd., Inc., Howard A. Farard, Plaintiffs, v. TOWN OF ASHLAND, Defendant.

LEDGEMERE LAND CORPORATION, Ledgemere Condominium Corporation, Marine Charter and Storage Ltd., Inc., Howard A. Fafard, Plaintiffs, v. TOWN OF MILFORD, Defendant.

Bankruptcy Nos. 90-40962-JFQ to 90-40968-JFQ, Adv. Nos. 91-4093, 91-4094.

United States Bankruptcy Court, D. Massachusetts.

December 3, 1991.

Barbara Gilmore, Sullivan & Worcester, Harold B. Murphy, Hanify & King, Boston, Mass., for debtors, plaintiffs.

Michael C. Lehane, Murphy, Hesse, Toomey & Lehane, Quincy, Mass., for defendant Town of Ashland.

Gerald M. Moody, Milford, Mass., for defendant Town of Milford.

OPINION

JAMES F. QUEENAN, Jr., Chief Judge.

Presented are questions of whether under § 505 of the Bankruptcy Code a bankruptcy court may adjudicate local real estate taxes assessed against a debtor where: (i) no abatement application has been filed with the town, and the time for filing the application has lapsed, (ii) an abatement application has been either granted or denied without a hearing, and the debtor has taken no appeal, or (iii) refunds are sought for real estate taxes paid but no request for a refund has first been made to the town.

The Debtors are in the business of developing and managing real estate. They own numerous commercial and residential properties, both developed and undeveloped. Their chapter 11 cases were administratively consolidated following the filings on June 15, 1990. Four of the Debtors bring complaints against both the Town of Ashland, Massachusetts, and the Town of Milford, Massachusetts, seeking a reduction in real estate taxes and refunds of certain taxes paid. The Town of Ashland moves to dismiss the complaint and for summary judgment. The Town of Milford moves for summary judgment. Because many of the legal issues are the same, this opinion will deal with all the motions.

The essential facts with respect to the Ashland case are these. The taxes at issue are for the fiscal years ending June 30, 1989; June 30, 1990; and June 30, 1991. The Debtors filed timely abatement applications with the town concerning some of the properties for the fiscal year ending June 30, 1991, but did not file any applications with respect to the preceding two fiscal years. Acting without a hearing as permitted by law, the assessors granted abatements on some of the properties and denied them on others. The Debtors took no appeal to either the Appellate Tax Board or the County Commission. The complaint filed here includes a request for a reduction in taxes for which no abatement has been sought from the town, as well as a request for a reduction in taxes included in abatement applications either granted or denied by the town. The complaint also contains a claim for a refund on certain taxes which have been paid.

The Debtors' dispute with the Town of Milford pertains to the same three fiscal years. They filed timely abatement applications with the Milford assessors on some of the properties included in the complaint for each of the three fiscal years. The town's board of assessors, without a hearing, granted certain requested abatements and denied others. Here again, the Debtors took no appeal. Unlike their complaint against the Town of Ashland, the Debtors' complaint against Milford does not contest any taxes on properties for which abatements were granted. As is the case with Ashland, the Debtors have paid some of the disputed taxes.

I. CORE VS. NONCORE

The Town of Ashland devotes much of its brief to the contention that this adversary proceeding is not a core proceeding within the meaning of 28 U.S.C. § 157 (1988). That subject has nothing to do with the town's motion to dismiss or its motion for summary judgment. The only consequence of this proceeding not being a core proceeding is that I would be required to enter proposed findings of fact and conclusions of law for review by the district court. 28 U.S.C. § 157(c)(1) (1988). That would have little significance here where the facts are stipulated. In any event, this is a core proceeding. A core proceeding includes one "arising under title 11." 28 U.S.C. § 157(b)(1) (1988). The present complaints arise under 11 U.S.C. § 505 (1988). The complaints, moreover, involve the allowance of a claim, which is expressly made a core proceeding by 28 U.S.C. § 157(b)(2)(B) (1988). The refund claims are also core proceedings as counterclaims under § 157(b)(2)(C).

II. THE COURT'S ABILITY TO ADJUDICATE ALL OF THE TAX ISSUES RAISED IN THE COMPLAINTS

Section 505 of the Bankruptcy Code, 11 U.S.C. § 505 (1988), reads in relevant part:

§ 505 Determination of tax liability

(a)(1) Except as provided in paragraph (2) of this subsection, the court may determine the amount or legality of any 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.

(2) The court may not so determine—

(A) The amount or legality of a 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.

A. Taxes for Which Abatement Applications Have not Been Filed

Under Massachusetts law, an application to abate an assessed tax must be filed on or before October 1 of the tax year involved or, if the tax bill is sent after September 1, on or before thirty days after the bill is sent. Mass.Ann.Laws ch. 59, § 59 (Law. Co-op.1990). Because the Debtors filed no timely abatement with the towns concerning many of the taxes in question, the towns contend that the Debtors have no cause of action. They rely upon the general principle that the validity of a claim depends upon state law.

Section 505, however, bars the court only from resolving tax issues "contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction." These taxes were never "contested." Nor, without the predicate of a contest, were they "adjudicated" through the act of assessment. To adjudicate means to resolve a controversy. Black's Law Dictionary 39 (5th Ed.1979).

State law is normally determinative of a claim. And the Debtor's failure to contest these taxes within the prescribed period may be analogized to a debtor's failure to contest a pre-petition law suit that results in a default judgment binding here. Congress has nevertheless concluded that tax claims merit special treatment. The broad grant of jurisdiction contained in § 505 makes no reference to time periods imposed by state law.

The statute's history is also indicative. Section 505 is largely a reenactment of § 2(a) of the prior Bankruptcy Act, 11 U.S.C. § 11(a)(2A) (repealed in 1978),¹ which also barred the bankruptcy court from determining taxes previously "contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction." Subject to this restriction, § 11(a)(2A) permitted the court to adjudicate taxes, and it was recognized that the reason for doing so was to prevent creditors from being prejudiced by a debtor's failure to contest assessed taxes. In In re Century Vault Co., 416 F.2d 1035 (3d Cir. 1969), decided shortly after the Bankruptcy Act was amended in 1966 by the insertion of § 2(a), the bankrupt corporation had failed to contest various Pennsylvania corporate taxes within the period prescribed by state law. The court held that this was not conclusive, quoting with approval the following discussion in Collier concerning the statute's purpose:

"One type of hazardous situation confronting creditors of a bankrupt is where the bankrupt has little or no interest in contesting, in fact, a tax assessment and permits an adjudication to be taken against him by default prior to bankruptcy. If the default is binding upon the creditors, they, of course, have not had their day in court. Absent bankruptcy, the creditors are not entitled to be heard but where bankruptcy ensues, they do have an interest that is deserving of some protection. They should not be bound by omissions of the bankrupt. The same should be true where the time has run against the bankrupt for contesting the claim. In this situation it is clear that the bankruptcy court may hear and determine the matter; there has been no contest and no adjudication. Where the bankrupt has defaulted instead, there also has been no contest; in actuality, the neglect of the bankrupt is the same, and the language in § 2a(2A) should be read in that light." 1 Collier on Bankruptcy § 2.22A at 215 (14th Ed.1967). 416 F.2d at 1041.

To the same effect is City of Amarillo v. Eakens, 399 F.2d 541, 543-44 (5th Cir. 1968), cert. denied 393 U.S. 1051, 89 S.Ct. 688, 21 L.Ed.2d 692 (1969). Under the prior Act, also, the principle requiring exhaustion of administrative remedies before resort to court did not apply to such tax controversies. In re New England High Carbon Wire Corp., 39 B.R. 886, 889 (D.Mass.1984).

The decisions under § 505 have followed suit. E.g., In re Tapp, 16 B.R. 315 (Bankr.D.Alaska 1981) (prepetition default judgment not binding upon bankruptcy court because matter not contested and adjudicated). Cf. In re El Tropicano, Inc., 128 B.R. 153 (Bankr.W.D.Tex.1991) (contested decision of three member appraisal review board binding); In re Ishpeming Hotel...