In re Nashville White Trucks, Inc.
| Citation | 22 BR 578 |
| Decision Date | 28 July 1982 |
| Docket Number | Bankruptcy No. 380-00080,Adv. No. 380-0590. |
| Parties | In re NASHVILLE WHITE TRUCKS, INC., a/k/a Mobile Truck and Trailer Service, Inc., Debtor. Martha B. OLSEN, Commissioner of Revenue For the State of Tennessee, Plaintiff, v. Irwin A. DEUTSCHER, Trustee, Defendant. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Middle District of Tennessee |
Linda M. Cole, Nashville, Tenn., for intervenor, United States.
Martha B. Olsen, Com'r of Revenue for the State of Tenn., Trustee.
J. Hugh McKinnon, Nashville, Tenn., for plaintiff, Com'r of Revenue for the State of Tenn.
William C. Argabrite, Nashville, Tenn., for defendant, Irwin A. Deutscher, Trustee.
This matter is before the court on the complaint of Martha B. Olsen, Commissioner of Revenue for the State of Tennessee (hereinafter "Commissioner"), seeking a declaratory judgment pursuant to 28 U.S.C. § 2201 that the automatic stay of 11 U.S.C. § 362 is unconstitutional as applied to the State of Tennessee or, if the automatic stay is constitutional, that the provisions of 11 U.S.C. § 362 do not prohibit the State of Tennessee from assessing and collecting delinquent or deficient sales taxes incurred by the debtor Nashville White Trucks, Inc. (hereinafter "Nashville White Trucks"), while operating under the provisions of Chapter 11 of the 1978 Bankruptcy Reform Act. Upon consideration of the evidence presented in this adversary proceeding, stipulations, briefs of the parties and the entire record, this court concludes that the automatic stay imposed by 11 U.S.C. § 362 is constitutional and that the stay precludes the State of Tennessee from taking any action to collect or assess the unpaid sales taxes in question from property of the estate.
The following shall constitute findings of fact and conclusions of law pursuant to Rule 752 of the Federal Rules of Bankruptcy Procedure.
The parties have stipulated to the following facts. On January 10, 1980, Nashville White Trucks filed a voluntary Chapter 11 petition in this court. Nashville White Trucks continued to operate its business as a debtor-in-possession under Chapter 11 of the Bankruptcy Code from January 10, 1980, until July 2, 1980. During this time, the debtor-in-possession accrued approximately $13,817.57 in unpaid sales and use taxes, penalties and interest.1 The records maintained by the debtor-in-possession indicate that Nashville White Trucks charged sales taxes on all taxable transactions incurred while operating under Chapter 11. These tax funds were not placed in a separate segregated account but instead were deposited in the general operating account of the debtor-in-possession.
On July 2, 1980, this court appointed Irwin A. Deutscher as trustee for the estate of Nashville White Trucks. Since his appointment, the trustee has submitted monthly sales and use tax returns to the Tennessee Department of Revenue summarizing the continued operations of Nashville White Trucks and has paid to the Tennessee Department of Revenue all sales and use taxes which have accrued during the trustee's administration of the estate. The trustee has, however, refused to remit the sales and use taxes accumulated by the debtor-in-possession prior to July 2, 1980. The trustee's action prompted Tennessee's Commissioner of Revenue to institute this adversary proceeding. As of the present date, no plan of reorganization has been filed in this case.
The Commissioner initially attacks the constitutionality of the automatic stay imposed by 11 U.S.C. § 362 as applied to the Tennessee Department of Revenue. The automatic stay prohibits any entity, including a governmental unit, from pursuing any action to obtain possession of property of the estate during the pendency of a Chapter 11 reorganization proceeding2, subject to certain restrictions which are not relevant herein. See In re Eisenberg, 7 B.R. 683, Bankr.L.Rep. (CCH) ¶ 68,514, at 80,241-80,242 (Bkrtcy.E.D.N.Y.1980). The Commissioner specifically alleges that the automatic stay provisions violate both the tenth and eleventh amendments to the United States Constitution.
The Commissioner relies on the United States Supreme Court decision in National League of Cities v. Usery, 426 U.S. 833, 96 S.Ct. 2465, 49 L.Ed.2d 245 (1976) and its progeny in challenging the constitutionality of the automatic stay under the tenth amendment.3 In National League of Cities, the Supreme Court held that Congress had exceeded its congressional power under the commerce clause of the United States Constitution4 by extending the statutory minimum wage and maximum hours provisions of the Fair Labor Standards Act to state and local governments. The Supreme Court found that Congress' attempt to impose minimum wage and maximum hour requirements on the States "operated to directly displace the States' freedom to structure integral operations in areas of traditional governmental functions." National League of Cities v. Usery, 426 U.S. at 852, 96 S.Ct. at 2474. The Commissioner contends that this same analysis should apply with equal force to the exercise of Congressional power under the bankruptcy clause of the United States Constitution.
However, the Supreme Court in National League of Cities held that the tenth amendment restricted Congress' power to act under the commerce clause, not the bankruptcy clause. The Court specifically declined to address the issue of whether Congress could affect integral operations of state government by exercising authority granted it under other sections of the Constitution. National League of Cities v. Usery, 426 U.S. at 852 n. 17, 96 S.Ct. at 2474 n. 17. As the Supreme Court recently recognized, "there are situations in which the nature of the federal interest advanced may be such that it justifies State submission." Hodel v. Virginia Surface Mining and Reclamation Association, 452 U.S. 264, 288 n. 29, 101 S.Ct. 2352, 2366 n. 29, 69 L.Ed.2d 1, 23 n. 29 (1981).5
The exercise of the Congressional bankruptcy power in the instant case represents such an overriding federal interest. In upholding the constitutionality of the discharge provisions of 11 U.S.C. § 523(a)(5)(A) against a tenth amendment challenge, the Second Circuit Court of Appeals expressed grave doubts as to whether the tenth amendment limitations set forth in National League of Cities applied to the federal bankruptcy power. Connecticut v. Glidden, 8 B.R. 128 (Bkrtcy.D.Conn.), aff'd 653 F.2d 85, 87-88 (2d Cir. 1981), cert. denied ___ U.S. ___, 102 S.Ct. 1003, 71 L.Ed.2d 295 (1982). This same conclusion was also reached by Bankruptcy Judge Emil Goldhaber in rejecting the State of Pennsylvania's tenth amendment attack on the lien avoidance provisions of 11 U.S.C. § 522(f)(1). In re Galbraith, 15 B.R. 549, 555-556 (Bkrtcy.E.D.Pa.1981).
This court concurs with the analyses set forth in the aforementioned opinions. The bankruptcy clause of the United States Constitution delegates to Congress the broad power "To establish ... uniform Laws on the subject of Bankruptcies throughout the United States." U.S.Const. art. I, § 8, cl. 4. The Supreme Court has consistently proclaimed that the federal bankruptcy power is unrestricted and paramount, Marine Harbor Properties, Inc. v. Manufacturer's Trust Co., 317 U.S. 78, 83, 63 S.Ct. 93, 96, 87 L.Ed. 64 (1942); International Shoe Co. v. Pinkus, 278 U.S. 261, 265, 49 S.Ct. 108, 110, 73 L.Ed. 318 (1929), and that Congress "may embrace within its legislation whatever may be deemed important to a complete and effective bankrupt system." United States v. Fox, 95 U.S. 670, 672, 24 L.Ed. 538 (1878). As one leading commentator remarked in differentiating between the commerce clause and the bankruptcy clause:
1 Collier on Bankruptcy ¶ 0.02, at 5 (14th ed. 1974).
Furthermore, the Supreme Court has recognized as a well-settled principle that a state's power to assess and collect state taxes must submit to the federal rules and regulations controlling the administration of the bankruptcy estate. See, e.g., Gardner v. New Jersey, 329 U.S. 565, 575-579, 67 S.Ct. 467, 472-474, 91 L.Ed. 504 (1947); New York v. Irving Trust Co., 288 U.S. 329, 331-333, 53 S.Ct. 389, 390-391, 77 L.Ed. 815 (1933); Van Huffel v. Harkelrode, 284 U.S. 225, 228-229, 52 S.Ct. 115, 116, 117, 76 L.Ed. 256 (1931). See also Springfield v. Hotel Charles Co., 84 F.2d 589, 591 (1st Cir. 1936). As the Supreme Court explained in New York v. Irving Trust Co., 288 U.S. at 333, 53 S.Ct. at 391:
"If a state desires to participate in the assets of a bankrupt, she must submit to appropriate requirements by the controlling power; otherwise, orderly and expeditious proceedings would be impossible and a fundamental purpose of the Bankruptcy Act would be frustrated."
In Gardner v. New Jersey, 329 U.S. at 577, 67 S.Ct. at 473, the Court again emphasized the necessity of requiring a state to pursue its tax lien within the framework of the federal bankruptcy proceeding:
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