In re Mayfair Mills, Inc.

• Decision Date: 27 November 2002
• Docket Number: Adversary No. 02-80090-W.,No. C/A 01-08491-W.,C/A 01-08491-W.
• Court: U.S. Bankruptcy Court — District of South Carolina
• Parties: In re MAYFAIR MILLS, INC., a South Carolina Corporation, Debtor and Debtor-in-Possession. Mayfair Mills, Inc., Debtor and Debtor-in-Possession, Plaintiff, v. Spartanburg County, Pickens County, and Anderson County, Defendants.

295 B.R. 827

In re MAYFAIR MILLS, INC., a South Carolina Corporation, Debtor and Debtor-in-Possession Mayfair Mills, Inc., Debtor and Debtor-in-Possession, Plaintiff, v. Spartanburg County, Pickens County, and Anderson County, Defendants.

No. C/A 01-08491-W.

Adversary No. 02-80090-W.

United States Bankruptcy Court, D. South Carolina.

November 27, 2002.

COPYRIGHT MATERIAL OMITTED

Brian E. Arnold, Greenville, SC, Jesse H. Austin, III, Karol K. Denniston, Paul, Hastings, Janofsky & Walker LLP, Atlanta, GA, Michael M. Beal, John B. Butler, Michael S. Church, Janet Godfrey Griggs, Annemarie B. Matthews, E. Katherine Wells, Columbia, SC, Deborah L. Fletcher, Charlotte, NC, Julio E. Mendoza, Jr., Nexson, Pruet, Jacobs & Pollard, Columbia, SC, for creditors.

G. William McCarthy, Jr., Columbia, SC, for debtor.

David H. Conaway, Charlotte, NC, David M. Groger, David M. Matthews, Shumaker, Loop & Kendrick, LLP, Charlotte, NC, David Allen Grumbine, Greenville, SC, David L. Kreindler, Phillips, Nizer, Benjamin, Krim & Ballon LL, New York City, John Carl West, Jr., Camden, SC, for Unsecured Creditors Committee and Joshua L. Baily & Co. Inc.

John Timothy Stack, Office of the United States Trustee, Columbia, SC, U.S. Trustee.

ORDER

JOHN E. WAITES, Bankruptcy Judge.

THIS MATTER comes before the Court upon the cross motions for summary judgment filed by Mayfair Mills, Inc. ("Debtor" or "Plaintiff") and Spartanburg County, Pickens County, and Anderson County (collectively, "Defendants"). In the underlying Complaint, Plaintiff seeks to reduce the tax liability it owes Defendants by relying on 11 U.S.C. § 505(a).¹ Plaintiff asserts that it sold most of its assets through three sales pursuant to § 363 and that the proceeds realized from the sales were substantially less than the assessed values Defendants assigned to the properties for tax purposes. According to Plaintiff, the actual or true values of the properties are reflected in the amounts generated from the § 363 sales; consequently, Defendants over-valued the taxable properties. Because the assessed values are inflated, Plaintiff argues the taxes should be reduced and be based upon the value realized from the § 363 sales. In response, Spartanburg County argues that the determination of taxes is controlled by state law and that it valued the taxable properties accordingly. Anderson County and Pickens County generally deny the allegations of Plaintiff's Complaint.

Plaintiff then filed its Motion for Summary Judgment (the "Plaintiff's Motion"). In the Plaintiff's Motion, Plaintiff argues that summary judgment is appropriate because § 505(a) permits courts to value properties that generate ad valorem taxes.² In addition, Plaintiff asserts that the undisputed material facts indicate that Defendants assessed the value of the taxable properties and levied ad valorem taxes and that neither the assessed value nor the taxes have been previously adjudicated. Plaintiff also asserts that, under South Carolina law, a taxpayer may challenge an assessment of real or personal property and achieve a reduction if sufficient evidence indicates that the assessed value is not equivalent to the true value of the property. Plaintiff then argues that the two Orders approving sales pursuant to § 363 are the law of the case and that these Orders establish that the sales reflect the true value of the properties because the sales occurred after Plaintiff adequately marketed the properties and participated in good faith negotiations to consummate the sales.³

Defendants also moved for summary judgment, arguing that the real party in interest is the lender providing debtor-in-possession financing and not Plaintiff and that Plaintiff failed to challenge the tax assessments by filing a timely protest.⁴ Further, Defendants argue that Plaintiff has failed to carry its burden of proof as it has not shown that the assessments were incorrect. Indeed, according to Defendants, Plaintiff did not establish the true value of the real properties pursuant to S.C.Code Ann. § 12-37-930 (Law.Co-op.1976) (Supp.2001) by virtue of its § 363 sales because (1) Plaintiff did not adequately expose the real properties to the market and (2) Plaintiff sold the real and personal properties under compulsion as a result of its need to sell the properties before winter and because the sales occurred while Plaintiff was in bankruptcy. Moreover, Defendants argue that Plaintiff fails to allocate the amounts received for real property from amounts received for personal property Plaintiff sold pursuant to § 363. According to Defendants, this failure prevents the Court from comparing the values received from the sales with the values Defendants used for tax assessment purposes. As a result, the Court is rendered unable to determine that Defendants over-valued the properties based on the evidence presented relating to the § 363 sales. Finally, Defendants disagree with Plaintiff's assertion that it can rely on the sales pursuant to § 363 to determine the value of the personal property sold. According to Defendants, the valuation of personal property is based upon a statutory depreciation schedule that cannot be departed from in favor of market value.

Both parties object to their opponent's motions for summary judgment.

After considering the pleadings, the supporting affidavits, and the parties' arguments the Court makes the following Findings of Fact and Conclusions of Law.⁵

FINDINGS OF FACT

1. On December 31, 2000, Defendants assessed and levied real and personal property taxes on Plaintiff's real and personal property located in Spartanburg, Pickens, and Anderson Counties for the fiscal tax year 2001. Specifically,

(a) Spartanburg County assessed and levied taxes totaling $306,779.28 ($51,435.32 for real property taxes and $225,343.96 for personal property taxes) for real and personal property owned by Plaintiff located within Spartanburg County. To determine these taxes, Spartanburg County used the assessed values of Plaintiff's Baily Plant at $91,770.00, the personal property located within the Baily Plant at $586,610.00, Plaintiff's Mayfair Plant at $87,260.00, and the personal property located within the Mayfair Plant at $404,290.00.

(b) Anderson County assessed and levied taxes totaling $94,519.36 ($53,405.35 for real property taxes and $41,114.01 for personal property taxes) for real and personal property owned by Plaintiff located within Anderson County. To determine these taxes, Anderson County used the assessed values of Plaintiff's Starr Plant at $2,028,000.00 and the personal property located within the Starr Plant at $1,592,381.00.

(c) Pickens County assessed and levied taxes totaling $332,172.22 (all for personal property taxes) for personal property owned by Plaintiff located within Pickens County. To determine these taxes, Pickens County used the assessed values of $544,571.00 for personal property located at Highway 93, $2,681,905.00 for personal property located at Hagood Street and South Railway, $2,728,667.00 for personal property also located at Hagood Street and South Railway, and $3,192,762.00 for personal property the location of which is not disclosed by the tax assessment.

2. On August 14, 2001, Plaintiff filed its Voluntary Petition for relief under Chapter 11 of the Bankruptcy Code.

3. On October 10, 2001, the Court entered an Order approving the sale of machinery and equipment from Plaintiff to Coker International, LLC for a total of $1,250,000.00 (the "Coker Sale").⁶ The machinery and equipment sold was located at Plaintiff's Starr Plant in Anderson County.

4. On November 21, 2001, the Court entered an Order approving the sale of real and personal property from Plaintiff to Gibbs International, Inc. for $4,944,000.00 (the "Gibbs Sale"). Plaintiff sold real property consisting of its Mayfair and Baily Plants, both located in Spartanburg County, its Glenwood Plant and Warehouse 93, both located in Pickens County, and its Starr Plant located in Anderson County. Plaintiff sold personal property consisting of machinery and equipment located at the Mayfair and Baily Plants (Spartanburg County) as well as the Glenwood Plant and Warehouse 93 (Pickens County).

5. Debtor asserts that its postpetition lender, Wachovia Bank, N.A., escrowed from the sales proceeds an amount to cover the taxes at issue.

6. All parties agree that, prior to this adversary proceeding, Plaintiff has not contested the amount or legality of the taxes at issue before any other judicial or administrative tribunal of competent jurisdiction.

CONCLUSIONS OF LAW

A. Standard for Summary Judgment

Rule 56(c) of the Federal Rules of Civil Procedure, made applicable to adversary proceedings under the Bankruptcy Code by Federal Rule of Bankruptcy Procedure 7056, provides that summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56. Summary judgment is appropriate "if the evidence is such that a reasonable jury could not return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In determining whether summary judgment is appropriate, the court must view all evidence in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

The moving party has the initial burden to show that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 332, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once this initial showing is made, the burden of production shifts to the nonmoving party. The nonmoving party must "go beyond the pleadings and by [i...