In re Northbrook Partners LLP

• Decision Date: 22 February 2000
• Docket Number: Bankruptcy No. 97-30231. Adversary No. 97-3272.
• Citation: 245 BR 104
• Parties: In re NORTHBROOK PARTNERS LLP, Debtor. Northbrook Partners LLP, Plaintiff, v. County of Hennepin, Defendant.
• Court: U.S. Bankruptcy Court — District of Minnesota

245 B.R. 104 (2000)

In re NORTHBROOK PARTNERS LLP, Debtor.

Northbrook Partners LLP, Plaintiff, v. County of Hennepin, Defendant.

Bankruptcy No. 97-30231. Adversary No. 97-3272.

United States Bankruptcy Court, D. Minnesota, Third Division.

February 22, 2000.

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Mary Johnson, Office of the Hennepin County Attorney, Minneapolis, MN, for Defendant.

Clinton E. Cutler, Minneapolis, MN, for Plaintiff.

ORDER RE: DEFENDANT'S MOTION IN THE ALTERNATIVE FOR DISMISSAL, SUMMARY JUDGMENT, ABSTENTION, AND MORE DEFINITE STATEMENT

GREGORY F. KISHEL, Bankruptcy Judge.

This adversary proceeding came on before the Court on the Defendant's motions in the alternative for dismissal, for summary judgment, for abstention, and for a more definite statement. The Defendant ("the County") appeared by Mary Johnson, Assistant County Attorney, and Robert T. Rudy, Senior Assistant County Attorney. The Plaintiff ("the Debtor") appeared by its attorney, Clinton E. Cutler. Upon the moving and responsive documents and the arguments of counsel, the Court makes the following order.

PARTIES

The Debtor is a limited liability partnership organized under the laws of Minnesota. It filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on January 14, 1997, and continues as a debtor in possession by operation of 11 U.S.C. § 1107. At all times material to this adversary proceeding, the Debtor owned certain real estate located in Brooklyn Center, Hennepin County, Minnesota, on which it operated a "strip mall" shopping center.

The County is a governmental subdivision of the State of Minnesota. It is responsible under Minnesota statute for assessing and collecting ad valorem taxes against the Debtor's real estate.

SUBJECT OF THIS LITIGATION

This adversary proceeding involves a dispute over the ad valorem taxes assessed by the County against the Debtor's real estate over a period of six years. The Debtor acquired the real estate at some point before 1991.¹ For the purposes of ad valorem tax assessment, the real estate is divided into five parcels. The County has assigned a separate tax identification number to each parcel; for shorthand, the parties have denominated the units as "parcels 24-28," inclusive. The parcels vary in size and shape. The Debtor put each of them to a somewhat different use in the design and operation of the shopping center.

Under MINN. STAT. § 273.01, the County lists property with reference to its value for the assessment of real estate taxes as of January 2 of the subject year. Under MINN. STAT. § 278.03 subd. 1, the taxes then become due and payable in May of the following year. If a property owner disagrees with the estimated market valuation ("EMV") placed on the property for the calculation of the tax, or otherwise "claims that such property has been partially, unfairly, or unequally assessed . . .," it may file a petition for review in the state district court during the year in which the taxes are due. MINN. STAT. § 278.01 subd. 1.² If proceedings on the petition are not completed by the 16th of May next following the filing, the petitioner may continue only if it pays 50 percent of the amount of the subject tax, or obtains a waiver of the payment requirement from the court in which the petition is pending. MINN. STAT. § 278.03 subd. 1. The court may grant the waiver upon a showing that the property owner is in good faith in seeking the review, that there is probable cause to believe that the property is exempt from the tax or that the tax may be determined to be less than 50 percent of the amount levied, and that payment of the levied tax would impose undue hardship on the property owner. Id. Failure to make the payment or to obtain the waiver "shall operate automatically to dismiss the petition," subject to reinstatement upon payment of the full amount of the tax plus penalty and interest within one year of the dismissal. Id.

PRE-PETITION PROCEDURAL HISTORY

On April 30, 1992, the Debtor filed a petition for review of the taxes payable in 1992 for all five parcels, in the Hennepin County District Court. The petition as to parcel 24 was dismissed automatically for the Debtor's failure to timely meet the partial-payment requirement of the statute, or to obtain a waiver of it.³

On May 6, 1993, the Debtor filed a petition for review of the taxes payable in 1993, for all five parcels. This petition too was dismissed as to parcel 24, for the Debtor's failure to timely meet the partial-payment requirement.⁴

On December 3, 1993, the Debtor and the County entered into a settlement agreement that resolved the petitions still pending for parcels 25 through 28 for years 1992 and 1993. The settlement reached certain other issues as well.⁵ The agreement provided for a substantial reduction of the EMV for parcel 25 for both years, and the maintenance of the EMV for parcels 26 through 28 for those years. It then provided:

. . . it is understood and agreed that the Debtor hereby waives all rights to reinstate the statutorily dismissed parcel 24.

Finally, the agreement included an accord as to the EMV for parcels 25 through 28 for taxes payable in 1994 and 1995. The Debtor was obligated to file a petition for review of the already-assessed taxes payable in 1994, to effectuate the reduction of the EMV and the taxes. For taxes payable in 1995, the stated values were to be used in the upcoming assessment of the parcels. The agreement contains no terms applying to parcel 24 other than the recital quoted above.

Pursuant to the settlement agreement, counsel for the County prepared and filed written offers to reduce the valuation of the subject parcels, pursuant to MINN. STAT. § 278.05 subd. 5 for the taxes payable in 1992, 1993, and 1994. The Debtor accepted the offers. The state court then entered judgment pursuant to the offers and acceptances on May 6, 1994, for taxes payable in 1992 and 1994, and on May 11, 1995, for taxes payable in 1993. Because of its prospective effect as to taxes payable in 1994, the settlement agreement did not require a petition for review, offer and acceptance, or judgment for taxes payable in 1995.

The Debtor did not timely file petitions for review for taxes payable in 1996; the County and the Debtor did not enter any agreement to affect the EMV or the taxes payable for that year.

By the time this motion was submitted, the Debtor had not paid the taxes payable in 1992, 1993, 1994, or 1995 for parcel 24. In addition, of taxes payable in 1996, it had paid only those for parcel 26.

POST-PETITION PROCEDURAL HISTORY

On March 28, 1997, after it had filed for reorganization in this Court, the Debtor filed three separate petitions in the Hennepin County District Court for review of taxes payable in 1997. The first, for parcel 24, was dismissed for failure to timely pay 50 percent of the subject tax, though the state court allowed the Debtor leave to reinstate the petition upon payment of some portion or all of the taxes by May, 1998. The other two petitions (the first for parcel 27, and the second for parcels 25, 26, and 28) were still pending when the motion at bar was submitted.

Meanwhile, on September 8, October 14, and November 7, 1997, the County filed a first proof of claim in the Debtor's Chapter 11 case, and two successive amendments to it. In the last one, the face amount of the claim is $637,215.17.

NATURE OF THIS ADVERSARY PROCEEDING

On October 9, 1997, the Debtor filed the complaint in this adversary proceeding. After reciting a truncated version of the procedural history as the factual basis for its complaint, the Debtor set forth two separate requests for relief. As the legal basis for its first count, the Debtor invoked 11 U.S.C. § 505(a)(1).⁶ In sum, as pleaded,

the Debtor requests an order of this court determining the amount of any tax or any fine or penalty relating to any tax assessed against its Real Property, for the years 1992 through 1997.

Via its second claim for relief, the Debtor objected to the County's filed claim. Styling this count under 11 U.S.C. § 502(b)(1),⁷ the Debtor essentially sought a redetermination of the EMV the County attached to the various parcels for the taxes payable in the years in question, and a resultant recalculation of the amount of the County's claim for the purposes of allowance and treatment in its Chapter 11 case. Though the statutory citations are different, the Debtor seeks the same relief through both counts.⁸

MOTION AT BAR

The County did not file an answer to the Debtor's complaint; rather, it filed the present motion.⁹ The County's main goal is to eject this litigation from the federal courts, under alternative theories:

1. The Tax Injunction Act, 28 U.S.C. § 1341, deprives the federal courts of subject matter jurisdiction over the issues pleaded by the Debtor.

2. The doctrine of issue preclusion (or collateral estoppel) bars the Debtor from relitigating any issue going to the amount of the County\'s claim for taxes payable in 1992 through 1995, given the parties\' entry into the December 3, 1993 settlement agreement and the entry of the three judgments based on it. Thus, as the County would have it, it is entitled to summary judgment on the Debtor\'s complaint, as it pertains to that portion of its filed claim.

3. Under longstanding Supreme Court case precedent, this Court should abstain pursuant to 28 U.S.C. § 1334(c)(1) — (2) from hearing and determining the Debtor\'s requests for relief, as to all of the parcels and all of the tax claims at issue.

As an alternative to the ejection of all or part of the issues under those theories, the County seeks an order compelling the Debtor to replead via a more definite statement pursuant to FED. R. CIV. P. 12(e), as incorporated by FED. R. BANKR. P. 7012(b).¹⁰

DISCUSSION

Introduction

At base, the Debtor is invoking more generalized remedies created under bankruptcy law, to counter the...