In re North
| Decision Date | 08 March 1991 |
| Docket Number | Bankruptcy No. 90-00258. |
| Citation | 128 BR 592 |
| Court | U.S. Bankruptcy Court — District of Vermont |
| Parties | In re James T. NORTH and Teresa A. North, Debtors. |
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A. Pastor, Law Offices of Raymond J. Obuchowski, Bethel, Vt., Trustee for James T. North and Teresa A. North (Dr. North).
S. Walton, Esq., Office of Professional Regulation, Vermont Secretary of State, and D. Cardozo, III, Vermont Dept. of Taxes, Montpelier, Vt., for James H. Douglas, Vermont Secretary of State, Rita C. Knapp, Director, Office of Professional Regulation, and Vermont Bd. of Chiropractic Examination and Registration (Bd.).
Dr. North seeks sanctions2 against Board for violation of the Bankruptcy Code's automatic stay because Board refuses to stay its pre-petition administrative Order suspending Dr. North's Chiropractic license for non-payment of pre-petition state taxes. Thus, we hold Board's license suspension Order is stayed from taking effect post-petition under 11 U.S.C. §§ 362(a)(1)3 because the plain purpose of Board's Order is to comply with Vermont's Tax Commissioner's statutory direction to suspend Dr. North's license as a means to enhance the state's coffers. Pecuniary collection activity is not excepted from stay under 11 U.S.C. § 362(b)(4).4 This is the classic case of "if it looks like a duck, walks like a duck, and quacks like a duck, it must be a duck."
On April 4, 1990, Board issued an Order suspending Dr. North's license to practice chiropractic medicine. Board's Order ensued from the Tax Commissioner's February 9, 1990 letter enlisting Board's suspension of Dr. North's license because Dr. North owed State taxes and charges in the amount of $9,799.17 since 1984. As stated by Board:
In re James T. North, DC, License No. 651, Docket No. CD03-0290, pages 2-3 (Vermont Board of Chiropractic Examination and Registration, Order April 4, 1990).
Board's Order stated the suspension was effective "45 days after the date of its order, May 19, 1990 and continuing until the Board receives a certificate of good standing from the Tax Commissioner." The effective date of the suspension occurred after Dr. North's Chapter 7 bankruptcy filing on May 16, 1990. 11 U.S.C. §§ 101, et seq.
Board's Order further stated its ruling would become final on May 4, 1990 upon the expiration of the appeal period. Dr. North did not appeal Board's Order.
On May 17, 1990, Dr. North's attorney notified the Tax Department, by letter and FAX transmission, of the May 16, 1990 bankruptcy filing. The May 17, 1990 letter proposed 4 monthly payments of $300.00 toward the outstanding non-dischargeable taxes totaling $1,125.736 in exchange for a "Certificate of Good Standing"7 from the Tax Department before Dr. North's suspension was to take effect. The Tax Department agrees that any state taxes owed by Dr. North prior to 1987 are dischargeable, and the May 17, 1990 letter qualifies as a good faith proffer for a "payment plan" for "good standing" under 32 Vt.Stat.Ann. § 3113(g). But no action was taken on this good faith offer.
In response to the suspension, Dr. North filed a motion for sanctions under 11 U.S.C. § 362 against Board. Dr. North asserts the sole purpose of Board's action is to collect taxes for the state. Dr. North claims full compliance with Board's supervisory and disciplinary provisions under 26 Vt.Stat.Ann. §§ 421 through 510, including § 505.8 Nonpayment of taxes is not one of the reasons Board may suspend his license. Moreover, Dr. North argues, Board's suspension of Dr. North's license does not protect Vermont's public welfare.9
Board asserts several arguments and defenses for its action. First, Board says it took no affirmative action against Dr. North after it issued the April 4, 1990 suspension Order. Second, the license suspension qualifies for the "governmental unit"10 exception of 11 U.S.C. § 362(b)(4). Third, and asserting a § 108 defense,11 Board says the period of time between when its Order became final pre-petition and the post-petition effective suspension date is a "mere running of time" that is not subject to the automatic stay. Moreover, there was nothing left for Dr. North to cure. Alternatively, if § 108(b) applies, Dr. North lost whatever protection § 108(b) provides because the trustee failed to invoke § 108(b) within 60 days of Dr. North's bankruptcy.12 Fourth, Board acknowledges that § 362's legislative history13 indicates license revocation proceedings are subject to the automatic stay. But, it points out 32 Vt.Stat.Ann. § 3113(f) is a valid exercise of Board's policy and regulatory powers, and thus, Dr. North's license suspension is excepted from the stay under § 362(b)(4).14 The interplay between the tax and the professional regulation statutes, Board claims, evinces a comprehensive regulatory scheme to protect public safety by encouraging the financial responsibility of licensed professionals.
Board also claims there is nothing for the automatic stay to stop after the appeal period expired pre-petition because Dr. North's license is not property of the estate.15 Finally, and asserting a Nuremberg defense, Board says sanctions are inappropriate where it had no discretion but to act as directed by the Tax Department.16
Dr. North's post-hearing memorandum raised two new arguments. First, in the event we hold the automatic stay prevented Board's Order from taking effect post-petition, then Board violated 11 U.S.C. § 108(c) by their "enforcement" of its Order three (3) days after Dr. North filed bankruptcy, when the license became property of the estate. Instead, Dr. North claims Board's enforcement "should have been stayed at least 30 days after the notice of termination or expiration of the stay under Section 362." Second, in the event we were to hold Board did not violate the automatic stay, Board is nevertheless enjoined from suspending Dr. North's license under 11 U.S.C. § 108(b) because Dr. North's license became property of the estate before the effective date of the suspension and the bankruptcy trustee had 60 days thereafter to determine what options to pursue with respect to that asset. Thus, Board violated § 108(b) "by continuing with its intention to suspend Dr. North's license within 3 days of his declaration of bankruptcy."
Dr. North's motion presents four issues: (1) Does any section of § 108 apply, (2) what is the scope of § 362(a)(1) as it applies to Dr. North, (3) does § 362(a)(1) require an affirmative act, and (4) does § 362(b)(4)'s "governmental unit" exception apply?
The factual posture of this motion, as presented by the parties, has placed us in a quixotical frame of thought because we can imagine various outcomes of Dr. North's case despite our ruling.
It is clear that only a limited subsection of § 108 applies here, regardless of the efforts of either Board or Dr. North to convince us otherwise. Before the filing of Dr. North's Chapter 7 petition, there was little he could do under applicable nonbankruptcy law to stay the tax collection activity, a/k/a the license suspension. The State, in the wisdom of its legislature, deems it appropriate to suspend professional licenses for the non-payment of taxes. As the Board stated, the statute may be harsh, even draconian, but it is rational. Outside of bankruptcy the loss of a professional license creates a powerful incentive to pay back taxes. As a Court, we have no right to challenge or change that wisdom.
Any appeal of Board's suspension passed because Dr. North did not appeal the Order.
Dr. North's next step, under applicable nonbankruptcy law, if he so chose, was to negotiate a payment plan under 32 Vt.Stat. Ann. § 3113(g). He could have exercised that right under State law or under Federal bankruptcy law. We can only speculate about why Dr. North chose to exercise his § 3113(g) rights in bankruptcy because we are not informed about his reasons for so doing. We are aware that Dr. North had a previously failed Chapter 13 case. His Chapter 7 filing was probably inevitable. Outside of bankruptcy, a § 3113(g) payment plan would have been onerous.17 Inside of bankruptcy, enhanced by the discharge of personal obligations and the majority of his tax debt, a § 3113(g) payment plan would be more manageable.
Board claims there was nothing left to be done in this matter but let the suspension go into effect. This claim misses the mark. Section 3113(g) provides for a "payment plan." There was something the Tax Department could have done, it could have chosen to act either negatively or affirmatively on Dr. North's May 17, 1990 letter. It chose to do nothing. Whether its choice was inadvertent or intentional we don't know. The only fact we have before us is that nothing was done by the state on the attempted exercise of a state granted right.
Upon the filing of the Chapter 7 petition, the State of Vermont's rights changed. Instead of the pre-petition position vis a vis the owed taxes, its post-petition position is that of unsecured creditor for most of the taxes and a non-discharged obligee for those taxes not...
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