In re Mall at One Associates, LP
| Citation | 185 BR 1009 |
| Decision Date | 31 August 1995 |
| Docket Number | Bankruptcy No. 93-15504 DAS. |
| Parties | In re MALL AT ONE ASSOCIATES, L.P., Debtor. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Lawrence J. Tabas, Philadelphia, PA, for debtor.
Douglas Candeub, Adelman, Lavine, Gold & Levin, Philadelphia, PA, for Mall at One Group, L.P.
Joseph DiGiuseppe, Philadelphia, PA, for City of Philadelphia.
Stewart Paley, Klehr, Harrison, Harvey, Branzburg & Ellers, Philadelphia, PA, for Bank of New York — Nat. Community Div.
Lawrence G. McMichael, Dilworth, Paxson, Kalis & Kauffman, Philadelphia, PA, for First American Title Ins. Co.
Ivan J. Krouk, Lincoln Rittenhouse, Philadelphia, PA, for RK Mall Corp., general partner of the debtor.
Frederic Baker, Ass't. U.S. Trustee, Philadelphia, PA.
In the instant dispute, we are confronted with several issues arising in context to objections to proofs of tax claims ("the Objections") filed by the City of Philadelphia ("the City"). As to the issues to which the parties have directed the most attention, we will sustain the objection to all taxes which arose prior to the Debtor's purchase of the real property owned by it at the commencement of the underlying bankruptcy case, a shopping mall located at Roosevelt Boulevard and Grant Avenue in Philadelphia ("the Mall"). We believe that this resolution is appropriate because the City can effectively assert these claims against the purchaser of the Mall at an auction sale conducted in conformity with the Debtor's confirmed plan, especially since this party was also the prior owner of the Mall who was liable for the taxes arising prior to the Debtor's ownership of the Mall, and because the issues raised are unresolved state law issues in which the City has a strong interest, thus justifying our abstention.
We also hold that the City's real estate tax claims and its pre-petition business use and occupancy 1993 tax ("BU & O") claims are properly classified as seventh priority, rather than secured claims. As such, we hold that the Debtor's confirmed plan allows the City to receive most of the compensatory interest which it seeks, but not penalties which are collectible in addition to interest. Further, we find that the City post-petition 1994 real estate tax claims and its post-petition BU & O tax claims are properly classifiable as administrative claims as to which the Debtor's confirmed plan does not preclude the City from receiving all penalties as well as interest.
Finally, we honor the City's request not to classify the 1995 real estate taxes, and designate them as simply nondischargeable post-confirmation obligations also collectible from the Mall's purchaser.
MALL AT ONE ASSOCIATES, L.P. ("the Debtor") filed the underlying voluntary Chapter 11 bankruptcy case on September 24, 1993. As we explained in a prior to-be-published Opinion, now reported only at 185 B.R. 981 (Bankr.E.D.Pa.1995) ("Opinion II"), in which we mostly denied the Debtor's motion to recover attorney's fees and expenses from its primary secured creditors pursuant to 11 U.S.C. § 506(c), the Debtor's only business has been ownership and operation of the Mall. 185 B.R. at 984.
As is noted in Opinion II, at id., the Debtor had four principal creditors at the outset of the case: (1) the Bank of New York — National Community Division, the first mortgagee of the Mall ("BNY"), which held a fully secured claim of $4.3 million; (2) Mall at One Group, L.P. ("Group"), the second mortgagee of the Mall, holding a claim of approximately $5.5 million which, in light of he $7.0 million value of the Mall, is undersecured; (3) ING Vastgoed One B.V., a third mortgagee whose $3.8 million claim was entirely unsecured; and (4) the City, which asserted secured, priority, and administrative tax claims totalling over $500,000.
After several failed attempts at presenting a confirmable plan, the Debtor succeeded in achieving confirmation of its Fifth Amended Plan of Reorganization Pursuant to Chapter 11 of the United States Code ("the Plan") on January 17, 1995. The Plan contemplated a sale of the Mall to a private entity, New Plan Realty Trust ("New Plan"), for a price of not less than $7 million, and provided for an auction sale of the Mall in the event that the sale to New Plan did not occur. Unfortunately, the sale to New Plan fell through, to the disappointment of all interested parties. As a result, the anticipated smooth consummation of the Plan did not occur. Instead, the auction alternative was triggered, which ultimately resulted in a successful credit bid of $7 million for the Mall by Group at the auction of April 11, 1995. As was exemplified by a dispute regarding the bid process resolved in Group's favor in a previous decision reported at 1995 WL 318851 ("Opinion I"), and as was noted in Opinion II, 185 B.R. at 984-985, these unexpected developments have led to considerable rancor and litigation among the parties. This is not surprising, because the Plan provisions are being applied to scenarios not envisioned by the parties at the time of confirmation.
The City filed two claims which are the subject of the Objections. The first (Claim No. 2), filed December 17, 1993, covered real estate taxes for tax years 1988, 1989, and 1993, and asserted a $288,048.06 totally-secured claim. The second (Claim No. 3), filed January 10, 1994, recited a $730.30 secured claim for unpaid water and sewer charges billed in June 1990,1 and a $92,024.33 priority claim for BU & O taxes arising in various months between May 1988 and September 1993.
The Plan, drafted and confirmed in happier days when the New Plan sale was contemplated, treated the City's BU & O tax claims in Class 2 and its real estate tax claims in Class 3. The Plan provides for treatment of Class 2 claims as follows:
The Debtor expects to reach an agreement with the City as to Debtor\'s liability for business, use and occupancy taxes. . . . All Class 2 Allowed Claims shall be paid in full in Cash on the Effective Date or as soon as practicable thereafter, unless a holder of such Claim agrees to less favorable treatment. A total of 730.30 is claimed due by the City for water and sewer service and $92,754.63 was originally claimed due by the City for BU & O Taxes. The Debtor does not believe it is liable for BU & O Taxes in excess of $3,317.04. Such Claim for BU & O Taxes is therefore a Contested Claim. As part of the settlement discussed in Section 3.3 below addressing the Class 3 claims, the Debtor expects the City to agree with the Debtor\'s position with respect to BU & O Taxes.
Class 3 claims, meanwhile, are treated as follows:
The 1993 (together with interest thereon through August 15, 1994) real estate taxes will be paid in full in Cash on the Effective Date. Although the Debtor does not believe it is liable for the 1988 and 1989 real estate taxes, and as the Debtor further believes that the taxes assessed by the City for 1988 and 1989 are excessive, such Claim is therefore a Contested Claim. In order to remove the lien of the 1988 and 1989 real estate taxes from the Property (a condition to its sale to the Property Purchaser or to any purchaser pursuant to an auction sale) without the delay and expense of litigation, the Debtor will agree to pay the 1988 and 1989 real estate taxes (together with interest thereon through August 15, 1994) in full in Cash on the Effective Date, provided that the City (i) agrees to accept $10,000 in respect to its Class 1 administrative Claim for payment of post-petition real estate taxes as an administrative expense, (ii) agrees that the Debtor\'s liability for BU & O Taxes is limited to $3,317.04 and (iii) fully releases Group and the Property Purchaser or any purchaser through an auction from any liability arising in connection with the Property at any time until the Confirmation Date, for any pre-petition or post-petition real estate taxes, BU & O Taxes or other taxes related to the Property.
The global settlement between the Debtor and the City anticipated as to much of the tax liability in issue was unfortunately never consummated. Therefore, the terms set forth in the last sentence of the immediately preceding Plan section never became effective.
On April 7, 1994, just prior to the auction sale, Group filed the Objections in issue. The Objections disputed numerous aspects of the City's claims, including the allegedly improper retroactive revocation of tax abatements previously granted to Group, as the prior owner of the Mall, for tax years including 1988 and 1989; the claim of secured status; the inclusion of penalties; and most of the liability for BU & O taxes. The Objections were originally scheduled for a hearing on May 24, 1995, but the hearing was continued several times to attempt to finalize a proposed settlement. Finally, on June 28, 1995, we ordered that a further request for a continuance until July 19, 1995, would be the last allowed. BNY, the Debtor, and First American Title Insurance Co. ("1st American"), which insured the Mall's title in the purchase by the Debtor, as unencumbered, joined the Objections on April 11, 1995; June 21, 1995; and June 27, 1995, respectively.
No settlement was reached and the hearing was in fact conducted on July 19, 1995. At the outset, we sustained the City's Objection to 1st American's participation in the hearing due to its lack of standing as a non-creditor. The bulk of the testimony focused on the validity of the City's attempted revocation of the tax abatement previously granted to Group, resulting in 1988 and 1989 real estate tax claims totalling about $160,000. Called by the Objectors were Arthur M. Halvajian, Group's former managing partner; Charles Morrison, a City employee who was formerly its "abatement coordinator;" Ivan Krouk, an attorney who is a shareholder of the Debtor's general partner, RK Mall...
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