In re: New Haven Projects v. City of New Haven, Docket No. 99-5073

• Decision Date: 01 August 1999
• Docket Number: Docket No. 99-5073
• Parties: (2nd Cir. 2000) In re: NEW HAVEN PROJECTS LTD. LIABILITY CO., Debtor. NEW HAVEN PROJECTS LTD. LIABILITY CO., Debtor-Appellant, v. CITY OF NEW HAVEN, FIRST UNION NATIONAL BANK, as Trustee for the New Haven TLC Trust 1995-1, and BREEN CAPITAL INVESTMENT CORPORATION, Appellees, UNITED STATES TRUSTEE, Trustee
• Court: U.S. Court of Appeals — Second Circuit

Page 283

225 F.3d 283 (2nd Cir. 2000)

In re: NEW HAVEN PROJECTS LTD. LIABILITY CO., Debtor.

NEW HAVEN PROJECTS LTD. LIABILITY CO., Debtor-Appellant, v. CITY OF NEW HAVEN, FIRST UNION NATIONAL BANK, as Trustee for the New Haven TLC Trust 1995-1, and BREEN CAPITAL INVESTMENT CORPORATION, Appellees, UNITED STATES TRUSTEE, Trustee.

Docket No. 99-5073

August Term, 1999

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued: April 20, 2000

Decided: September 14, 2000

Amended: September 20, 2000

EUGENE MITTELMAN, Sherman, Citron & Karasick, P.C., (Howard Karasick, on the brief), New York, NY, for debtor-appellant.

MARYLOU SCOFIELD, Assistant Corporation Counsel for the City of New Haven, New Haven, CT, for appellee City of New Haven.

DAVID DOYLE, The Marcus Law Firm, (Marjorie R. Gruszkiewicz, on the brief), New Haven, CT, for appellees First Union National Bank as Trustee for the New Haven TLC Trust 1995-1 and Breen Capital Investment Corporation.

Before: SOTOMAYOR and KATZMANN, Circuit Judges.^*

AMENDED OPINION

SOTOMAYOR, Circuit Judge:

Appeal from an order of the United States District Court for the District of Connecticut (Warren W. Eginton, Judge) affirming a decision of the United States Bankruptcy Court for the District of Connecticut (Albert S. Dabrowski, Bankruptcy Judge). The bankruptcy court declined to conduct a redetermination of tax liability as permitted under 11 U.S.C. § 505 for a debtor in bankruptcy proceedings. Debtor-appellant argues that the bankruptcy court is required to conduct such a review except under a certain narrow range of circumstances not present here. Debtor-appellant further argues that even if the bankruptcy court were to have broader discretion in deciding when to conduct a Section 505 review, the court in this case relied upon an erroneous finding in reaching its decision, treating the only party likely to benefit from Section 505 review as an insider creditor. Rejecting both of these contentions, we affirm.

BACKGROUND

The facts relevant to the instant appeal are not disputed by the parties. On December 17, 1987, New Haven Projects No. 1 Corporation ("NHP Corp.") was organized under the laws of Connecticut with Mitchel Maidman as its president and director. In August 1988, NHP Corp. conveyed several real properties in New Haven, Connecticut ("the Properties") to another entity, New Haven Associates Limited Partnership ("NHP Partnership"), whose general partners were Richard Maidman and NHP Corp.

Following its acquisition of the Properties, NHP Partnership obtained mortgages secured by the Properties from the New Connecticut Bank and Trust Company. Shortly thereafter, the Federal Deposit Insurance Corporation ("FDIC") exercised receivership over the bank and became the creditor for the Properties' mortgages.

In 1991, the City of New Haven ("City") reassessed the value of NHP Partnership's Properties pursuant to Conn. Gen Stat. §12-62 (1993) to determine the market value of real estate for the purpose of levying property taxes. The City increased its assessment of the Properties from approximately $423,000 to over $980,000, and for the years 1991-1995, the City levied taxes based on the new assessment. NHP Partnership made no effort to contest the City's new tax assessment within the one year statute of limitations imposed by Connecticut law. See Conn. Gen. Stat. § 12-119 (1993). NHP Partnership then failed to pay these property taxes for the period 1991-1995. The City filed liens against the Properties and later transferred its rights under the tax liens to two entities, First National Bank as Trustee for the New Haven TLC Trust 1995-1 and Breen Capital Investment Corporation ("the Tax Lien Purchasers").

On September 11, 1996, debtor-appellant New Haven Projects, LLC ("Debtor") was formed under the laws of Connecticut with Scott Hurwitz as its resident agent. Debtor's address was given as 432 East 87th Street, New York City, the same office address given for Mitchel Maidman and Richard Maidman at the time NHP Corp. and NHP Partnership were formed. According to the record, NHP Corp. owned 99% of Debtor with the remaining 1% interest owned by New Haven Surplus, LLC ("New Haven Surplus"), a Connecticut LLC, also with Scott Hurwitz as its resident agent.

On September 12, 1996, one day after Debtor was formed, NHP Partnership conveyed the Properties to Debtor. The following day, September 13, 1996, Debtor filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. On December 10, 1996, the case was transferred to the United States Bankruptcy Court for the District of Connecticut. Finally, on December 16, 1996, the FDIC assigned its mortgages against the Properties to another entity, the W.M. Maidman Family Limited Partnership ("Maidman Trust"), also located at 432 East 87th Street, New York City.

Debtor's bankruptcy petition listed several unsecured creditors presenting a total of less than $8,000.00 in claims, representing at most approximately one half of a percent of the debt structure of Debtor.

On September 15, 1997, Debtor moved the bankruptcy court to review and reduce its tax liability for the period 1991-1995 pursuant to 11 U.S.C. § 505(a) (1994), and to determine tax liability for the period following the filing of the bankruptcy petition pursuant to 11 U.S.C. § 503(b)(1)(B) (1994). The bankruptcy court declined to conduct a Section 505 review, however, finding that the claims of the unsecured creditors were de minimis, failing to justify Section 505 review, and that the secured creditor Maidman Trust was an insider creditor, and, along with the Maidman family, controlled Debtor and its predecessors such that any reduced tax assessment would result in a windfall to Debtor and its affiliates at the expense of the City and the Tax Lien Purchasers.

On May 7, 1999, the district court affirmed the bankruptcy court's decision and this appeal followed.

DISCUSSION

Reviewing this matter on appeal, "[t]he district court's order affirming the bankruptcy court is 'subject to plenary review.'" Tudisco v. United States (In re Tudisco), 183 F.3d 133, 136 (2d Cir. 1999) (quoting Shugrue v. Air Line Pilots Ass'n, Int'l (In re Ionosphere Clubs, Inc.), 922 F.2d 984, 988 (2d Cir. 1990)). Accordingly, we review conclusions of law de novo and findings of fact for clear error. Id.

Debtor challenges the bankruptcy court's decision to abstain from redetermining the value of the Properties pursuant to 11 U.S.C. § 505, which defines the parameters of a bankruptcy court's jurisdiction to determine a debtor's tax liability as follows:

(a)(1) Except as provided in paragraph (2) of this subsection, the court may determine the amount or legality of any tax,² any fine or penalty relating to a tax, or any addition to 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, fine, penalty, or addition to 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 . . . .

11 U.S.C. § 505(a) (1994) (emphasis added).

Subject to certain limitations, § 505 empowers a bankruptcy court to redetermine the amount of a debtor's tax liability even when a debtor has failed to comply with state law procedures for challenging such liabilities, including applicable state law statutes of limitations. See In re Piper Aircraft Corp., 171 B.R. 415, 418 (Bankr. S.D. Fla. 1994); see also Metropolitan Dade County v. Kapila (In re Home and Housing of Dade County, Inc.), 220 B.R. 492, 494-95 (S.D. Fl. 1998) (stating that under 11 U.S.C. § 505, "[t]he debtor is given a renewed opportunity to contest the amount due for taxation, and the bankruptcy court is not bound by time limits to determine the amount of taxes applicable in any other forum"); In re 499 W. Warren Street Assocs. Ltd., 143 B.R. 326, 329 (Bankr. N.D.N.Y. 1992) (same). As one bankruptcy court has explained:

The broad grant of jurisdiction contained in § 505 makes no reference to time periods imposed by state law. . . . [A] debtor as representative of the bankruptcy estate is allowed to contest tax debts in the bankruptcy court even though his prior inaction would bar him from contesting them elsewhere. This is permitted on the ground that taxes with their priority impose a special problem for creditors, and creditors should not be prejudiced by a debtors's inaction.

Ledgemere Land Corp. v. Ashland (In re Ledgemere Land Corp.), 135 B.R. 193, 196-97 (Bankr. D. Mass. 1991).

Debtor argues that the bankruptcy court in this case was required to redetermine its tax liability under § 505. According to Debtor, a court may abstain from making such a redetermination only upon a showing that uniformity of tax assessments is of significant importance to the governmental entities involved. While all parities agree that the need to maintain a uniformity of tax assessments may certainly be considered by a court in determining whether to reassess taxes under § 505, the dispute here surrounds whether a court may, in its discretion, consider additional factors when deciding whether to conduct a § 505 redetermination of tax liability.

In support of its interpretation of Section 505, Debtor relies upon two bankruptcy court cases, In re Fairchild Aircraft and In re AWB Associates. In Fairchild Aircraft, the bankruptcy court stated that

abstention from deciding a tax adjudication question under Section 505 is only appropriate upon a showing that uniformity of assessment is of significant importance. No such showing has been made here. If the tax rate were the subject of this motion, perhaps abstention might be appropriate. Because the trustee only...