In re Piccadilly Cafeterias, Inc.

• Decision Date: 18 April 2007
• Docket Number: No. 06-13759.,06-13759.
• Citation: 484 F.3d 1299
• Parties: In Re: PICCADILLY CAFETERIAS, INC., Debtor. State of Florida Department of Revenue, Plaintiff-Appellant, v. Piccadilly Cafeterias, Inc., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

484 F.3d 1299

In Re: PICCADILLY CAFETERIAS, INC., Debtor State of Florida Department of Revenue, Plaintiff-Appellant, v. Piccadilly Cafeterias, Inc., Defendant-Appellee.

No. 06-13759.

United States Court of Appeals, Eleventh Circuit.

April 18, 2007.

Frederick F. Rudzik, State of FL, Dept. of Rev., Tallahassee, FL, for Plaintiff-Appellant.

Ilyse Mindy Homer, Berger Singerman, Miami, FL, Leslie Gern Cloyd, Arthur J. Spector, Berger Singerman, P.A., Fort Lauderdale, FL, for Defendant-Appellee.

James D. Newbold, Chicago, IL, Zachary Mosner, Seattle, WA, for Amici Curiae.

Appeal from the United States District Court for the Southern District of Florida.

Before BARKETT and KRAVITCH, Circuit Judges, and TRAGER,^* District Judge.

PER CURIAM:

The Florida Department of Revenue ("DOR") appeals the district court's affirmance of the bankruptcy court's decision granting Piccadilly Cafeterias ("Piccadilly") a stamp-tax exemption pursuant to 11 U.S.C. § 1146(c) on the sale of Piccadilly's assets. The issue presented is whether the § 1146(c) stamp-tax exemption may apply to asset transfers made before plan of reorganization is confirmed under 11 U.S.C. § 1129.

I. Background

On October 28, 2003, Piccadilly executed an asset purchase agreement with Piccadilly Acquisition Corporation ("PAC") wherein PAC agreed to purchase substantially all of Piccadilly's assets, consisting mainly property, for $54 million. On October 29, 2003, Piccadilly filed for bankruptcy under Chapter 11 of the Bankruptcy Code. Piccadilly also filed a motion requesting authorization to sell substantially all of its assets outside of the ordinary course of business pursuant to 11 U.S.C. § 363(b)(1). As part of its § 363 motion, Piccadilly also requested an exemption from stamp taxes on the asset sale pursuant to 11 U.S.C. § 1146(c). The DOR objected to both requests.

Although Piccadilly had already executed an asset purchase agreement with PAC, it nonetheless requested that the bankruptcy court conduct an auction through which the highest bidder would be entitled to purchase its assets. In an order dated December 4, 2003, the bankruptcy court approved the bidding process, scheduled an auction of Piccadilly's assets, established bid and sale procedures for the auction, and scheduled a hearing to approve the ultimate sale. The winning bid of $80 million was from Piccadilly Investments, LLC.

On January 26, 2004, Piccadilly, along with a committee of senior secured note holders and a committee of unsecured creditors entered into a global settlement agreement ("Global Settlement"). The Global Settlement resolved, inter alia, the priority of distribution among Piccadilly's creditors and, according to Piccadilly, was in many ways "analogous to confirmation of a plan."

On February 13, 2004, the bankruptcy court conducted a sale hearing, approved the sale of Piccadilly's assets to Piccadilly Investments, and held that the sale was exempt from stamp taxes pursuant to § 1146(c). The court also approved the Global Settlement. On March 15, 2004, the bankruptcy court entered an amended sale order. The DOR then filed a motion to reconsider, vacate, and/or amend the sale order, which the court denied. The asset sale closed on March 16, 2004.

On March 26, 2004, Piccadilly filed its initial Chapter 11 Plan of Liquidation and later filed an "Amended Plan." The DOR filed an objection to confirmation of the Amended Plan and commenced the instant adversary action by filing a complaint against Piccadilly seeking a declaration that stamp taxes in the amount of $39,200 were not exempt under § 1146(c). On October 21, 2004, over the DOR's objection, the bankruptcy court confirmed the Amended Plan (the "Confirmation Order"). The DOR filed a motion to reconsider the Confirmation Order, which the bankruptcy court denied. The DOR then filed an amended complaint in the adversary proceeding, and both Piccadilly and the DOR filed motions for summary judgment.

Following a hearing, the bankruptcy court granted summary judgment in favor of Piccadilly, holding that the asset sale was exempt from stamp taxes pursuant to § 1146(c). The bankruptcy court reasoned that the sale of substantially all of Piccadilly's assets was a transfer "under" its confirmed plan of reorganization because the sale was necessary to consummate the plan. On appeal, the district court affirmed the bankruptcy court's grant of summary judgment to Piccadilly. In its order, however, the district court emphasized that the parties had not addressed the issue of whether the § 1146(c) tax exemption applied to the sale of Piccadilly's assets, rather, the parties focused their arguments on whether the exemption may ever apply to asset transfers completed before a plan of reorganization has been confirmed by the bankruptcy court (that is, pre-confirmation transfers). Thus, according to the district court, the issue of whether the § 1146(c) exemption applied to the sale of Piccadilly's assets was not properly before it. Nevertheless, the district court expressly affirmed the bankruptcy court's implicit conclusion that § 1146(c) may apply "where a transfer is made pre-confirmation." The DOR appeals.

II. Discussion

On appeal, the DOR argues that the district court erred in holding that the § 1146(c) stamp-tax exemption may apply to pre-confirmation asset sales. "[T]his court reviews a district court's order granting summary judgment de novo." In re Club Assocs., 951 F.2d 1223, 1229 (11th Cir.1992). We likewise review de novo questions of law involving the interpretation and application of the Bankruptcy Code, whether from the bankruptcy court or the district court. In re Int'l Admin. Servs., Inc., 408 F.3d 689, 698 (11th Cir. 2005).

Section 1146(c)¹ of the Bankruptcy Code exempts from stamp or similar taxes any asset transfer "under a plan confirmed under" § 1129. 11 U.S.C. § 1146(c). The dispute in this case turns upon whether pre-confirmation transfers may constitute transfers "under a plan confirmed."

This court has yet to squarely address whether the § 1146(c) tax exemption may apply to pre-confirmation transfers. The Third and Fourth Circuits, however, have addressed this issue, and both have held that the § 1146(c) tax exemption may not apply to such transfers.

In In re NVR, LP, the Fourth Circuit held that the plain language of § 1146(c) foreclosed application of the tax exemption to pre-confirmation transfers. 189 F.3d 442, 456-58 (4th Cir.1999). After determining that standard dictionaries define "under" as "[w]ith the authorization of," "inferior," or "subordinate," the Fourth Circuit stated that it could not "say that a transfer made prior to the date of plan confirmation could be subordinate to, or authorized by, something that did not exist at the date of transfer—a plan confirmed by the court." Id. at 457. The NVR court also relied on the interpretive canon that courts must narrowly construe exemptions from state taxation in reaching its holding. Id.

In In re Hechinger Investment Co. of Delaware, Inc., the Third Circuit concluded that "the most natural reading of the phrase `under a plan confirmed' in 11 U.S.C. § 1146(c) is `authorized' by such a plan" and held that the § 1146(c) exemption does not apply to pre-confirmation transfers. 335 F.3d 243, 252-54 (3d Cir. 2003). In so holding, the Hechinger majority determined that the "authorized by" reading "fits best with the remaining language of Section 1146(c)" and also "gives the phrase `under a plan confirmed' the same meaning as an identical phrase in another provision of the Bankruptcy Code, 11 U.S.C. § 365(g)." Id. at 253-54. The court also relied on two interpretive canons: "tax exemption provisions are to be strictly construed" and "federal laws that interfere with a state's taxation scheme must be narrowly construed in favor of the state." Id. at 254.

Although, as stated, this court has never addressed the precise issue of whether the § 1146(c) exemption applies to pre-confirmation transfers, in In re T.H. Orlando Ltd., it addressed a somewhat similar issue of interpretation regarding § 1146(c). 391 F.3d 1287, 1291 (11th Cir.2004). In that case, as part of a confirmed plan, a third-party mortgage lender agreed to lend money to the debtor on the condition that the owner of the property adjacent to the debtor's property would refinance its mortgage through the same mortgage lender. Id. at 1289-90. The issue before this court was whether a transaction between two non-debtors (a transaction that was specifically contemplated by the confirmed plan of reorganization) was exempt from stamp taxes under § 1146(c). Id. at 1290-91. The court concluded that "[a] transfer `under a plan' refers to a transfer authorized by a confirmed Chapter 11 plan. In turn, a plan authorizes any transfer that is necessary to the consummation of the plan." Id. at 1291. Accordingly, this court held that "the phrase `under a plan' refers to a transfer that is necessary to the consummation of a confirmed Chapter 11 plan."² Id. at 1292.

The Second Circuit also addressed an analogous issue in In re Jacoby-Bender, Inc., where the question presented was whether a property transfer that occurred post-confirmation was exempt under § 1146(c) even though the "plan did not mention any instrument of transfer and did not give the debtor the authority to make the specific sale." 758 F.2d 840, 841 (2d Cir.1985). The Second Circuit observed that "Congress's apparent purpose in enacting section 1146(c) was to facilitate reorganizations through giving tax relief." Id. The court also noted that § 1146(c) was derived from § 267 of Chapter X of the old Bankruptcy Act, and that § 267 related to transactions "which serve to execute or make effective a plan confirmed under Chapter X." Id. at 841-42. To that end, the court held that a specific sale or asset transfer takes place "under" a confirmed plan within the meaning of § 1146(c) where the transfer "is necessary to the consummation of a...