In re Vill. at Oakwell Farms, Ltd.

• Decision Date: 19 April 2010
• Docket Number: No. 09-52932-C,09-52932-C
• Citation: 428 B.R. 372
• Parties: In re The VILLAGE AT OAKWELL FARMS, LTD. fdba El Chaparral Apartments, Debtor.
• Court: U.S. Bankruptcy Court — Western District of Texas

428 B.R. 372

In re The VILLAGE AT OAKWELL FARMS, LTD. fdba El Chaparral Apartments, Debtor.

No. 09-52932-C.

United States Bankruptcy Court,

W.D. Texas,

San Antonio Division.

April 19, 2010.

Martin Warren Seidler, San Antonio, TX, for Debtor.

David G. Aelvoet and Don P. Stecker, Linebarger Goggan Blair & Sampson, LLP, San Antonio, TX, for Bexar County.

Decision on Debtor's Objection to Claim of Bexar County and Motion for Tax Determination Pursuant to 11 U.S.C. § 505

LEIF M. CLARK, Bankruptcy Judge.

Came on for hearing the foregoing matter. The court held a hearing on March 31, 2010, and took evidence. At the conclusion of the hearing, the court determined that the taxing authority's request for abstention should be denied. See In re Luongo, 259 F.3d 323 (5th Cir.2001). The court took under submission two issues—whether section 108 gave the debtor an extension of time within which to contest taxes for the year 2009, and, if so, whether the adversary rules should be invoked.

Factual Background

The debtor owns a parcel of property on which sits an apartment building good for little more than razing. In fact, it was the debtor's intention to raze the existing structure so that the property could be redeveloped. The debtor's source of funding dried up however. The taxing authority had meanwhile valued the property at what the debtor now says was a grossly unfair or inflated value relative to its actual highest and best use. The court focused its attention on the 2009 tax year, finding that it was too late to challenge the adjudications for 2008—those findings were now final and would be barred by the language of section 505(a)(2).¹

Tax year 2010 is still "open"—the determination has yet to be made.However, the court has elected to abstain from that determination, even though the plain language of section 505(a) would permit a court to make such a determination. Once a debtor files for bankruptcy, it must manage and operate its property according the requirements of valid non-bankruptcy law just as would an owner of that property out of bankruptcy. See 28 U.S.C. § 959(b). At least in this case, it seems most appropriate that the debtor in chapter 11 proceed with the systems already in place for determining this year's tax liability, rather than substituting this court for that process. Permissive abstention will thus be exercised with respect to tax year 2010. See 28 U.S.C. § 1334(c)(1); In re Pilgrim's Pride Corp., 2009 Bankr.LEXIS 2222 at *11 (Bankr.N.D.Tex. Aug. 17, 2009).

Tax year 2009 presents a difficult legal question, however. The debtor filed for relief before the 60 day time period expired for the debtor to file a petition for review under non-bankruptcy law. Thus, under state law, the adjudication by the Appraisal Review Board for that year never became final prior to filing. See Tex. Prop. Tax Code,, § 42.21(a).² Bexar Countyargues that the debtor cannot challenge the ARB's ruling on 2009 ad valorem taxes by means of section 505(a)(1), because the applicable period for contesting the ARB's ruling "has expired," albeit post-petition. See 11 U.S.C. § 505(a)(2)(C). The debtor counters that the "has expired" language in that subsection means "has expired" as of the commencement of the case.

The resolution of the dispute requires the court to construe section 505(a)(2)(C) and section 108 (both subsections (a) and (b)) together. A review of the procedures in Texas for challenging an ad valorem tax valuation confirms that, as of the filing of this case, there had not yet been a final adjudication of the issue. What is more, as of the filing date, the debtor still had available to it the right to a full trial de novo of the issues of valuation of the realty (assuming a challenge to that valuation was contained in its notice of protest). Does section 108(a) or (b) extend that time? If so, for how long? And does the new language in section 505(a)(2)(C) trump section 108? To date, the court has found no cases that answer these questions.

At the outset, we need to determine which subsection of section 108 applies.

Section 108(a) says

If applicable nonbankruptcy law ... fixes a period within which the debtor may commence an action, and such period has not expired before the date of the filing of the petition, the trustee [debtor-in-possession] may commence such action only before the later of—

(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or

(2) two years after the order for relief.

11 U.S.C. § 108(a). Thus, if this section applies, then the debtor in this case, as debtor-in-possession (and thus exercising the powers of a trustee) would have up to two years after the date of the filing to "commence an action."

Section 108(b) says

Except as provided in subsection (a) ... if applicable nonbankruptcy law ... fixes a period within which the debtor ... may file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition, the [debtor-in-possession] may only file, cure, or perform, as the case may be, before the later of—

(1) the end of such period ...

(2) 60 days after the order for relief.

11 U.S.C. § 108(b). Thus, if this section applies, then the debtor had only until October 2, 2009 to take action.

In In re CGE Shattuck, LLC, 272 B.R. 514 (Bankr.D.N.H.2001), the court ruled that section 108(a) applied to the initiation of a challenge to a tax determination under the law of New Hampshire, stating that all that had occurred prior to the filing was an administrative procedure that had to be exhausted before the taxpayer had any right to proceed in a judicial or quasi-judicial forum. The court there concluded that the lawsuit yet to be initiated under New Hampshire law fit the bill as an action to be commenced, and so qualified for the two year extension of time under section 108(a). Distinguishing what matters are governed by section 108(a) and whatare governed by section 108(b), the court had this to say:

Section 108(a) determines the time within which a trustee may "commence an action." See 11 U.S.C. § 108(a). An "action" ordinarily means a lawsuit brought in a court. See TLI, Inc. v. U.S., 100 F.3d 424, 427 (5th Cir.1996) (citing Fed.R.Civ.P. 3; Black's Law Dictionary 28 (6th ed.1990)). An appeal from a decision of a lower federal court does not constitute the commencement of an action, but rather the continuation of an action, and section 108(b) rather than section 108(a) governs the time for a trustee to file such notice. See Roberts v. Comm'r of Internal Revenue, 175 F.3d 889, 898 (11th Cir.1999) (the filing of an appeal from a tax court decision is governed by section 108(b). However, when federal law requires a taxpayer to file an administrative request prior to filing a lawsuit in a federal court, the administrative request is not the commencement of an action for the purposes of section 108(a) because the filing of the request is not the commencement of a lawsuit in a court.) TLI, Inc., 100 F.3d at 427 (citing In re Howard Industries, Inc., 170 B.R. 358, 361-62 (Bankr.S.D.Ohio 1994); In re Carter, 125 B.R. 832, 836 (Bankr.D.Kan.1991); Lynch v. Rogan, 50 F.Supp. 356, 357-58 (S.D.Cal.1943)) (decided under 11 U.S.C. § 29, the Bankruptcy Act predecessor of section 108(a)). Thus, the time to file such an administrative request is governed by section 108(b). See id.

Id., at 518-19. This court concurs with the reasoning in CGE Shattuck, and concludes that section 108(a) will apply if the action commenced under section 42.21 of the Texas Property Tax Code is a "new action," but that section 108(b) applies if that action is merely an appeal from a lower tribunal's ruling.

The determination does not turn on the label assigned to the remedy by state law, either. In CGE Shattuck, the action sought to be initiated was called an "appeal" but was "not an appeal in the usual legal sense of the word." Id., at 519. The "petition for review" here is also not an appeal either, even though the statute says "a party who appeals as provided by this chapter...." See Tex. Prop. Tax Code,, § 42.21(a). As it was in the New Hampshire case, the nature of the review is de novo. Id., at § 42.23(a). Indeed, it is clear error for a Texas state district court considering a petition for review of an ARB's determination to rely on or give any weight to the factual findings of the appraisal review board, and the court must instead permit the presentation of evidence on all matters "on appeal" and render its ruling thereon. See National Pipe & Tube Co. v. Liberty County Central Appraisal District, 805 S.W.2d 593, 597 (Tex.App.-Beaumont 1991, writ denied). It may, based on that evidence, make its own independent determination of value, unhampered by any findings made by the ARB. Tex. Prop. Tax Code,, § 42.24(1). If the district court finds the appraised value of the property to be excessive, then the court's finding of value is then binding on the appraisal district and must be entered on the appraisal roll. Id., § 42.25. An appeal may then be made of the final judgment of the district court "as provided by the law for appeal of civil suits generally." See Tex. Prop. Tax Code,, § 42.28.

This structure fits the analysis employed by the court in CGE Shattuck. Here, as there, the taxpayer is permitted to present evidence in support of its pleadings, and is not bound by any factual findings or legal conclusions rendered by the ARB. Texas courts themselves describe the notice of protest to (and determination by) the ARB as the exhaustion of the administrative remedy that stands as a prerequisite topermit a district court to conduct a do novo review. See Appraisal Review Bd. of Harris County Appraisal Dist. v. O'Connor & Associates, 267 S.W.3d 413, 418-19 (Tex.App.-Houston [14th Dist] no writ). The action is limited only by the scope of the issues laid out in the notice...