In re El Tropicano, Inc.
| Decision Date | 13 May 1991 |
| Docket Number | Adv. No. 90-5260.,Bankruptcy No. 89-53623-C |
| Citation | 128 BR 153 |
| Parties | In re EL TROPICANO, INC., Debtor. EL TROPICANO, INC., Plaintiff, v. Rudy A. GARZA, Tax Assessor-Collector, Quentin Porter Tax Assessor-Collector and Bexar Appraisal District, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Texas |
William R. Davis, Jr., Law Office of Garvin P. Stryker, Robert J. Myers, Willis, Hickey, Hougham & Myers, San Antonio, Tex., for plaintiff.
Patrick C. Bernal, Heard, Goggan, Blair & Williams, San Antonio, Tex., for Porter & Garza.
Scott Breen, Dale Wilson, Foster, Lewis, Langley, Gardner & Banack, Inc., San Antonio, Tex., for Bexar County.
CAME ON for consideration this complaint by the Debtor to determine tax liability, filed against Defendants Rudy A. Garza, Tax Assessor-Collector for Bexar County, Texas, Quentin Porter, Tax Assessor-Collector for the City of San Antonio, Texas, and Bexar Appraisal District. Upon consideration of the stipulations, the arguments of counsel and the pleadings in the matter, the court enters this its decision disposing of the matter.
This court has original subject matter jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and 11 U.S.C. § 505 and may enter a final order with respect thereto. 28 U.S.C. § 157(c)(2). This matter is core proceeding. 28 U.S.C. § 157(b)(2)(A).
El Tropicano, Inc. ("Debtor") filed a voluntary chapter 11 petition in bankruptcy on November 15, 1989. On July 31, 1990 the estate's primary asset, a hotel facility in San Antonio, was sold to Karim Hospitality, Inc. for $8,538,500.00, shortly before confirmation of the Debtor's Plan of Reorganization on August 6, 1990.
Debtor by this motion is seeking a redetermination of its ad valorem tax liability for the tax years 1987, 1988 and 1989 based upon Section 505(a) of the Bankruptcy Code. Debtor asserts that the taxable value of the hotel for 1987 and 1988 should have been no more than $6,400,000.00. Debtor seeks to set the taxable value for 1989 at the fair market value of the property as of that time. If the Debtor is successful, the taxing units will have to return to the Debtor's estate "excess taxes and assessments" for the previous years in question.
The subject property consists of the hotel facility (the El Tropicano Hotel) as well as ancillary properties used for parking.1
For the tax year 1987, Debtor, with the aid of a tax representation firm, protested the initial Bexar Appraisal District valuation of the principal account and subsequently reached a negotiated settlement with the taxing authorities as to the valuation for that year, agreed to be $8,693,000.00.
For the tax year 1988, Debtor, again with the aid of a tax representation firm, again protested the initial Bexar Appraisal District valuation of the principal account and again reached a negotiated settlement as to the valuation, this time agreed to be $8,500,000.00.
For the tax year 1989, Debtor, still with the aid of a tax representation firm, once again protested the Bexar Appraisal District initial valuation of the principal account before the Bexar Appraisal Review Board, a three-member administrative review panel. The Board decided on a valuation of $7,930,000.00, after a contested hearing.
It has been stipulated that there were additional remedies available to the Debtor in each of the tax years which were not pursued.2 El Tropicano did not seek judicial review of any of the appraised values for 1987, 1988 or 1989, and the time deadline under Texas law for seeking any judicial review had expired prior to this bankruptcy case being filed.3
Debtor contends that for all three tax years the valuations were not "contested before and adjudicated by a judicial or administrative tribunal. . . ." within the meaning of the bankruptcy statute and that, therefore, this court has jurisdiction to reexamine such valuations pursuant to Section 505(a).
Defendants counter that the Bexar Appraisal Review Board is a "quasi-judicial body" before which the 1989 tax valuation was "contested before and adjudicated," precluding this court from exercising jurisdiction over the tax determination by virtue of Section 505(a)(2)(A). Defendants further contend that the settlements agreements from 1987 and 1988 should operate as some form of estoppel against the Debtor. There is also the suggestion that, apart from Section 505, this court may be precluded from redetermining tax liabilities in all events by virtue of 28 U.S.C. § 1341.
The resolution of this case turns upon the construction of Section 505(a)(2), which provides, in relevant part, that:
11 U.S.C. § 505(a)(2)(A) (emphasis added). The analysis is slightly different for tax years 1987 and 1988 on the one hand, for which settlement agreements were reached prior to adjudication, and for tax year 1989, for which an adjudication was had before an administrative tribunal (though no judicial review was either sought or obtained).
Initially, the court will dispose of the "jurisdictional" argument raised by the defendants, then will turn to the substantive question of how Section 505(a)(2)(A) is to be interpreted. Finally, the court will address the discretionary review question suggested by the language of subsection (a)(1).
Defendants first maintain that this court lacks the subject matter jurisdiction to reexamine the taxes assessed in prior years, based on Section 1341 of Title 28, which provides that "the district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341. Despite this general proscription, Section 505 of Title 11 specifically grants the district court (and by virtue of Section 157(a) of Title 28, the bankruptcy court) jurisdiction in a bankruptcy case to determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed and whether or not paid including any right of the estate to a tax refund. "Section 1341 has been held not to divest bankruptcy courts of their specifically granted power to adjudicate state tax assessments." Carrollton-Farmers Branch v. Johnson & Cravens, 858 F.2d 1010, 1014 (5th Cir. 1988), modified, 867 F.2d 1517, vacated on other grounds, 889 F.2d 571 (1989); City Vending of Muskogee v. Oklahoma Tax Comm'n, 898 F.2d 122, 123 (10th Cir.1990), cert. denied, ___ U.S. ___, 111 S.Ct. 75, 112 L.Ed.2d 48 (1990); see Adams v. State of Indiana, 795 F.2d 27, 29 (7th Cir.1986).
Defendants' assertion that Section 505(a)(2)(A) itself operates as a jurisdictional limitation is also incorrect, as this court's jurisdiction is defined not by Title 11 but by Title 28. The court clearly has jurisdiction to determine whether the prerequisites outlined in Section 505 have been satisfied, because district courts have original subject matter jurisdiction over "all civil proceedings arising under Title 11, . . .," including, of course, matters arising under Section 505(a)(2)(A). 28 U.S.C. § 1334(a). Section 157(a) of Title 28 in turn permits the reference of all matters over which the district court has original jurisdiction to the bankruptcy courts. 28 U.S.C. § 157(a).
Section 505(a)(2)(A), far from further defining the court's jurisdiction, merely defines the extent of the relief available to the debtor or trustee under Title 11, affording the defendants a de facto affirmative defense which they have the burden to raise. See In re Frusher, 124 B.R. 331, 333-34 (D.Kan.1991) (). If these defendants had failed to timely raise the issue, they would not have had the right to bring it up at a later time, as they would an attack on the subject matter jurisdiction of the court.4
Section 505(a)(2)(A), is not a jurisdictional bar but rather an affirmative defensive, requiring us to turn to the merits.
In 1987 and 1988, the valuation of the subject property (and the ultimate tax assessed as a direct function thereof) was reached by a negotiated settlement agreement. The issue is whether the resulting tax amounts for these two years count as having been "contested before and adjudicated by an administrative or judicial tribunal of competent jurisdiction" within the meaning of Section 505(a)(2)(A).5 Should settlement agreements count as an "adjudication" for purposes of Section 505(a)(2)(A)?
Thomas v. State of Louisiana, 534 F.2d 613, 615 (5th Cir.1976); Rodriguez v. Via Metropolitan Transit System, 802 F.2d 126, 129 (5th Cir.1986); Bostik Foundry v. Lindberg, A Div. of Sola Basic, 797 F.2d 280, 283 (6th Cir. 1986), cert. denied, 479 U.S. 1066, 107 S.Ct. 953, 93 L.Ed.2d 1002 (1987) (...
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