In re Purcell

• Decision Date: 31 January 2007
• Docket Number: Bankruptcy No. 97-20145-B-7.,Adversary No. 05-2486.
• Citation: 362 B.R. 465
• Parties: In re John E. PURCELL, Debtor. John E. Purcell, Plaintiff, v. Shabbir A. Khan, Treasurer and Tax Collector of the County of San Joaquin, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of California

362 B.R. 465

In re John E. PURCELL, Debtor.

John E. Purcell, Plaintiff, v. Shabbir A. Khan, Treasurer and Tax Collector of the County of San Joaquin, Defendant.

Bankruptcy No. 97-20145-B-7.

Adversary No. 05-2486.

United States Bankruptcy Court, E.D. California, Sacramento Division.

January 31, 2007,

COPYRIGHT MATERIAL OMITTED

Kimberlee R. Gerton, Roseville, CA, for Plaintiff.

Lawrence P. Meyers, Stockton, CA, for Defendant.

MEMORANDUM DECISION

THOMAS C. HOLMAN, Bankruptcy Judge.

Plaintiff John E. Purcell ("Plaintiff') seeks a declaration that a debt for unpaid personal property taxes owed to creditor Shabbir A. Khan, Tax Collector for San Joaquin County ("Defendant"), was discharged in the above-captioned bankruptcy case. Plaintiff also seeks injunctive relief prohibiting Defendant from enforcing the debt and ordering Defendant to release tax liens held against Plaintiffs property. For the reasons explained in this Memorandum Decision, Plaintiff is not entitled to judgment for the relief he seeks, and judgment will be entered in favor of Defendant.

This matter came before the court at a pre-trial conference in Sacramento, California on August 23, 2006. Philip Rhodes, Esq. represented Plaintiff, and Lawrence Meyers, Esq., Deputy County Counsel for San Joaquin County, represented Defendant. The parties filed an agreed statement of facts on August 17, 2006. The court requested trial briefs, and the matter was deemed submitted on September 29, 2006; the deadline for the parties' reply briefs.

On December 27, 2006, the court withdrew the submission, issued a draft memorandum decision and set the matter for status conference on January 24, 2007. At the January 24, 2007 status conference, the parties stipulated that certain factual assumptions in the draft memorandum decision were accurate. Those factual assumptions are set forth below at the end of the factual background. The matter was re-submitted at the conclusion of the status conference on January 24, 2007.

This is a core proceeding and the Court has jurisdiction over this matter. 28 U.S.C. §§ 1334 and 157 (2000). The following constitutes the Court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

FACTUAL BACKGROUND

Plaintiff owned a boat that was moored at a marina located in. San Joaquin County, California from 1986 through November, 1990. In November, 1990, Plaintiff moved his boat and moored it at a marina located in Alameda County, California. In or around April, 1992, a secured lender repossessed Plaintiffs boat from the marina in Alameda County and sold it at foreclosure.

Defendant levied on an annual basis personal property taxes on the boat for the years 1986 through 1993. Plaintiff did not pay property taxes on the boat for tax years 1986, 1988, 1989, 1991, and 1992, totaling 836,543.91.

On January 6, 1997, Plaintiff, John E. Purcell, doing business as Loadmaster Enterprises, filed the above-captioned bankruptcy case in this court. The case was originally filed under Chapter 13. At the time of the filing, Plaintiff no longer owned the boat, and he did not list Defendant as a creditor in his bankruptcy schedules. Plaintiff converted his case to Chapter 7 on February 23, 1998. A bar date was set for the filing of claims. Plaintiff received a chapter 7 discharge in the above-captioned bankruptcy case on August 27, 1998. The case was closed on August 2, 2002.

In February, 1999, Defendant filed a certificate of delinquency with the San Joaquin County Recorder for $2,177. In July, 2002, Defendant filed another certificate of delinquency for $1,742 with the San Joaquin County Recorder. And in January, 2003, Defendant filed a third certificate of delinquency with the San Joaquin County Recorder for $1,946. Defendant currently asserts that Plaintiff owes San Joaquin County $31,388.55, including interest and penalties, for tax years 1986, 1988, 1989, 1991, and 1992.

Defendant did not receive any court-generated notice of Plaintiff's bankruptcy case, nor did he receive notice or acquire actual knowledge of Plaintiffs bankruptcy case, at any time before Plaintiff received his discharge. During the pendency of Plaintiff's bankruptcy case, the Chapter 7 trustee distributed $2,239.13 on account of the administrative expenses of the bankruptcy estate, and distributed $12,570.71 to unsecured priority claimants Internal Revenue Service and Sacramento County. The unsecured priority claims in Plaintiffs case totaled 7,559.36. No distribution was made to any, secured creditors or to any unsecured, non-priority creditors.

The factual assumptions to which the parties stipulated as additional, facts are the following. First, Plaintiff did not own any real property in San Joaquin County as of any lien date that would apply for securing the personal property taxes assessed on Plaintiffs boat. Second, the secured lender that repossessed Plaintiffs boat in April, 1992, validly foreclosed on the boat in accordance with applicable nonbankruptcy law. Third, the Plaintiffs boat was a vessel that was subject to California documentation requirements for vessels, and the boat was continually moored in Alameda County from November, 1990, to the date it was sold at foreclosure. Fourth, Plaintiff failed to pay the taxes only in the years 1986, 1988, 1989, 1991, and 1992.

Analysis

In order to resolve this matter, the court must first address the nature of Defendant's tax claims. The court will then address whether Defendant's tax claims are excepted from the discharge in Plaintiffs bankruptcy case under 11 U.S.C. Section 523(a)(3). Finally, the court will address Defendant's collection rights in light of Plaintiff's request for injunctive relief requiring Defendant to release its tax liens.

I. Defendant's Claims Would Have Been Non-Priority Unsecured Claims

Plaintiff asserts that Defendant's claims would not have been entitled to secured or priority unsecured status in "Plaintiffs bankruptcy case. Defendant asserts that at the time Plaintiffs bankruptcy case was filed, Defendant held a secured claim. For the reasons set forth in this Part the court finds that if Plaintiff had properly scheduled the tax debt, Defendant would have held a non-priority, unsecured claim in the bankruptcy case.

A. Defendant's Claims Would Not Have Been Secured Claims

Defendant argues that, as taxes were levied on Plaintiffs boat in tax years 1986, 1988, 1989, 1991, and 1992, a tax lien attached to the boat as of March 1st in each of those years pursuant to California Revenue and Taxation Code Section 2192¹. Section 2192 stated, for the years in question, that "all tax liens attach annually as of 12:01 a.m. on the first day of March preceding the fiscal year for which the taxes are levied." Cal Rev. "& Tax Code § 2192 (West 1998). Defendant contends that Section 2192 created a tax lien on Plaintiffs boat on March 1 of 1986, 1988, 1989, 1991 and 1992².

Defendant also cites Revenue and Taxation Code Section 2191.3, which allows the tax collector to record a notice of delinquency, the recording of which constitutes a lien upon all of the debtor's personal and real property in San Joaquin county pursuant to Section 2191.4. Defendant argues that Sections 2191.3, 2191.4, and 2192 work together to create a tax lien on all of Plaintiffs property in the County of San Joaquin as of each March 1st preceding the tax year for which the delinquent taxes were assessed, even though the first certificate of delinquency was not recorded until 1999.

The court concludes that Defendant is mistaken and that Defendant did not have any secured claim prior to or at the time of the filing Plaintiffs bankruptcy case. Defendant misreads the provisions of the California Revenue and Taxation Code, particularly regarding how tax liens on personal property arise in California.

The California Revenue and Taxation Code provides for the assessment and collection of both secured and unsecured taxes. Property taxes in California may be assessed either on the "secured roll" or the "unsecured roll." See Cal. Rev. & Tax Code § 109 (West 1998). "The `secured roll' is that part of the roll containing State assessed property and property the taxes on which are a lien on real property sufficient, in the opinion of the assessor, to secure payment of the taxes. The remainder of the roll is the `unsecured roll.'" Id. "State assessed property" is that property which is assessed by the California State Board of Equalization pursuant to Revenue and Taxation Code Section 721, and includes the property specified in Section 19 of Article XIII of the California Constitution and any legislative authorization thereunder.

Whether a tax is secured or unsecured depends on the nature of the tax and the nature of the property against which the tax is assessed. "It is settled law in this state that the lien of a property tax exists only by virtue of statute and that taxes are not a lien on the property assessed unless expressly made so by statute." T.M. Cobb Co. v. County of Los Angeles, 16 Cal.3d 606, 618, 128 Cal.Rptr. 655, 547 P.2d 431, 438 (1976). For real property in California, such a statute exists: "Every tax on real property is a lien against the property assessed." Cal. Rev. & Tax Code § 2187 (West 1998). The Revenue and Taxation Code does not, however, provide that a tax on personal property constitutes an automatic lien on the property assessed. T.M. Cobb, 16 Cal.3d at 618, 128 Cal.Rptr. 655, 547 P.2d 431.

Under certain circumstances, a tax lien securing taxes assessed against personal property may be created against the taxpayer's real property. A tax on personal property may be a lien on any real property on the secured roll also belonging to the owner of the personal property, if the personal property is located upon that real property on the lien date. Cal. Rev. & Tax Code § 2189 (West 1998). A lien on the taxpayer's real property may also arise if the personal property taxed is...