In re Stack Steel & Supply Co., Bankruptcy No. 82-01721.
| Decision Date | 24 February 1983 |
| Docket Number | Bankruptcy No. 82-01721. |
| Citation | 28 BR 151 |
| Court | U.S. Bankruptcy Court — Western District of Washington |
| Parties | In re STACK STEEL & SUPPLY CO., Debtor. |
Norman B. Page, Margaret L. Schaaf, Davis, Wright, Todd, Riese & Jones, Seattle, Wash., for Seattle-First Nat. Bank.
Richard R. Beresford, Beresford, Booth & Baronsky, Seattle, Wash., for Donald L. Ginsberg, Trustee.
Sandra L. Cohen, Seattle, Wash., for King County Pros. Atty.
Garard A. Gesinger, Spokane, Wash., for Spokane County Pros. Atty.
MEMORANDUM ON OBJECTIONS TO CERTAIN CLAIMS
This matter came on for hearing as a result of objections made by Seattle-First National Bank (hereinafter, the "bank"), a secured creditor, to the following claims:
1. Claim of Spokane County, Washington for ad valorem property taxes payable in the last half of 1982 in the amount of $12,035.35, and interest and penalty thereon.1
2. Claim of King County, Washington for ad valorem property taxes payable in the last half of 1982 in the amount of $27,285.49, and interest and penalty thereon.
3. Claim of Spokane County, Washington for ad valorem property taxes payable for the year 1983 in the amount of $23,359.20, and interest and penalty thereon.
4. Claim of King County, Washington for ad valorem property taxes payable for the year 1983 in the amount of $56,919.07, and interest and penalty thereon.
Under Washington statute, RCW 84.60.020, a lien is created on the date of assessment, i.e., listing and valuation, of a personal property tax. On June 24, 1981, July 14, 1981, August 6, 1981 and November 23, 1981 the King County assessor listed and valued certain parcels of personal property of Stack Steel & Supply Co. (hereinafter, the "debtor") for taxes payable for the year 1982. On March 31, 1981 and March 26, 1982, the Spokane County assessor listed and valued certain parcels of personal property of the debtor for taxes payable for the years 1982 and 1983, respectively.
On June 11, 1982 the debtor filed a petition for relief under Chapter 11 of the Bankruptcy Code (hereinafter, the "Code"). Subsequent to the filing of the petition, the King County assessor listed and valued personal property of the estate for taxes payable for the year 1983. King County asserts that a lien was perfected in its favor on June 22, 1982, the date of its assessment of 1983 personal property taxes.
Both county claimants assert that their pre-petition liens secure claims for taxes, interest and penalty payable after the date of the filing of the Chapter 11 petition.
This Court will first discuss the tax claims arising out of pre-petition assessments by King and Spokane counties and then discuss the tax claim arising out of the post-petition assessment by King County.
As earlier noted, once property is valued and listed by Washington state taxing authority, that property is encumbered with a tax lien. RCW 84.60.020; Air Base Housing, Inc. v. Spokane County, 56 Wash.2d 642, 354 P.2d 903 (1960). However, the bank argues that it would be improper for the Court to grant lien status to the entire amount of 1982-payable taxes pursuant to the counties' pre-petition assessments, and to the 1983 payable tax pursuant to the Spokane County assessment of March 26, 1982, because the assessed entity's assets became property of the estate on June 11, 1982. The bank asserts that the latter half year 1982-payable taxes and all of the 1983-payable Spokane County taxes should be characterized as "incurred by the trustee" pursuant to Code § 503(b)(1)(B)(i) and awarded administrative expense, but not lien status.
The Court is of the view that the 1982 and 1983 payable taxes were "incurred" when the debtor's personal property became impressed with the tax liens and that no reduction in status may be deemed to have occurred because of the subsequent filing of the Chapter 11 petition. Under Code § 506(a), allowed claims of creditors secured by liens are secured claims to the extent of the value of the creditors' collateral. Prior to the Code, it was always a fundamental tenet of bankruptcy law that a lien when valid in bankruptcy shall not be impaired in the administration of the bankruptcy estate. Oppenheimer v. Oldham, 178 F.2d 386 (5th Cir.1949). And, the Code nowhere contemplates that the filing of a petition in bankruptcy somehow negates the effect of valid, non-preferential liens.2 Accordingly, the Court concludes that the counties' pre-petition liens validly secure all of the 1982 and 1983 payable taxes which were assessed prior to the filing of the Chapter 11 petition.
The bank also asserts that post-petition interest and penalty are not recoverable by King and Spokane counties as a consequence of liens perfected prior to the filing of the Chapter 11 petition. The bank asks the Court to find that the debtor is insolvent and further asks the Court to disallow the counties' claims for interest and penalty based on such proposed finding.3
Post-petition interest questions are governed by federal law. Vanston Bondholders' Protective Committee v. Green, 329 U.S. 156, 163, 67 S.Ct. 237, 240, 91 L.Ed. 162 (1946); Debenture Holders Protective Committee of Continental Investment Corporation v. Continental Investment Corporation, 679 F.2d 264, 268 (1st Cir.1982). Code § 506(b) provides:
To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided under the agreement under which such claim arose.
There can be no question that the tax-lien secured properties are of amounts well in excess of the amounts of the taxes, interest and penalties being claimed herein. This fact is not dispositive, however.
Code § 502(b)(2) provides for the disallowance of claims to the extent of unmatured interest as of the date of the petition. This seemingly broad prohibition admits certain exceptions. See In re Busman, 5 B.R. 332, 336 (Bkrtcy.E.D.N.Y.1980). Under case law under the former Bankruptcy Act, three exceptions were carved out of a general prohibition on unmatured interest to the effect that interest was allowed where: (1) the alleged bankrupt proves solvent; (2) the security held by the creditor as collateral produces income after the filing of the petition; and (3) the security is sufficient to pay interest as well as the principal amount of the claim. See United States v. Bass, 271 F.2d 129, 130 (9th Cir. 1959). The Ninth Circuit has held that the third exception is not available to liened tax claims for the principle reason stated in United States v. Harrington, 269 F.2d 719, 724 (4th Cir.1959):
* * * When the creditor extended credit, it, he relied upon the particular security given as collateral to secure both the principal of the debt and interest until payment and, if the collateral is sufficient to pay him, the contract between the parties ought not be abrogated by bankruptcy. This rationale has no application to tax liens.
Quoted in United States v. Bass, supra, at 131. Accordingly, in order to receive interest resulting from pre-petition tax liens, the counties must avail themselves of one of the first two exceptions listed above.
However, there has been no evidence presented that the debtor is solvent or that the property upon which the county claimants held pre-petition tax liens produced income after the filing of the petition.4 In fact, the liened property was sold shortly after the filing. In these circumstances, the general prohibition against unmatured interest set forth in Code § 502(b)(2) must operate to preclude the counties from receiving post-petition interest as a result of pre-petition liens.5
As regards the contested claim for penalties, it is perhaps significant that § 502(b), the provision of the Code which prescribes the grounds upon which certain claims may be disallowed, contains no specific provision disallowing claims for penalties. In any event, the legislative history to the Code6 clearly indicates that lien-secured penalties were not intended to be avoidable in Chapter 11 cases. See House Report No. 95-595, 95th Cong. 1st Sess. (1977) 382; Senate Report No. 95-989, 95th Cong., 2d Sess. (1978) 96 U.S.Code Cong. & Admin. News 1978, p. 5787. In re Program Management and Design Associates, Inc., 25 B.R. 144 (Bkrtcy.D.Mass.1982). Therefore, as long as this case remains in Chapter 11, this Court is constrained to allow the claim for penalties secured by pre-petition tax liens.
On June 22, 1982, King County listed and valued personal property of the estate for 1983-payable taxes. On October 7, 1982, two days after the Court authorized the sale of the personal property of the estate located in King County, the county computed the 1983-payable taxes at the request of the trustee. This computation apparently was done pursuant to RCW 84.56.070 which provides in pertinent part:
If the county treasurer has reasonable grounds to believe that any personal property upon which taxes have been levied, but not paid, is about to be removed from the county where the same has been assessed, or is about to be destroyed, sold or disposed of, the county treasurer may demand such taxes, without the notice provided for in this section, and if necessary may forthwith distrain sufficient goods and chattels to pay the same.
See also RCW 84.56.090. The sale of the estate's personal property located in King County closed on October 18, 1982. The same date the Court confirmed the sale, free and clear of liens, specifying that all claims and interests in the property were replaced by the right to make claim against the proceeds of sale.
King County contends that it held a lien for the 1983-payable taxes as a result of the ...
To continue reading
Request your trial