State of Maryland v. Antonelli Creditors' Liquidating Trust
| Decision Date | 26 August 1997 |
| Docket Number | No. 96-1111,96-1111 |
| Citation | 123 F.3d 777 |
| Parties | STATE OF MARYLAND; Montgomery County; Baltimore County, Plaintiffs-Appellants, v. ANTONELLI CREDITORS' LIQUIDATING TRUST; Realco-Ritchie Center LLC; BK Belmont LLC; Camberwell Properties LLC, Defendants-Appellees, United States of America, Intervenor-Appellee. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Julia Melville Freit, Assistant Attorney General, Baltimore, MD, for Appellants. Daniel Martin Lewis, Arnold & Porter, Washington, DC, for Appellees. Michael Eugene Robinson, Civil Division, United States Department of Justice, Washington, DC, for Intervenor. ON BRIEF: J. Joseph Curran, Jr., Attorney General of Maryland, Baltimore, MD; Charles W. Thompson, Jr., Montgomery County Attorney, David J. Frankel, Associate County Attorney, Rockville, MD; Virginia W. Barnhart, Baltimore County Attorney, Towson, MD, for Appellants. Andrew T. Karron, Richard M. Lucas, Arnold & Porter, Washington, DC; John A. Roberts, Venable, Baetjer & Howard, L.L.P., Baltimore, MD; Douglas Bregman, Bregman, Berbert & Schwartz, Bethesda, MD; Michael Barrett, John Millian, Gibson, Dunn & Crutcher, Washington, DC, for Appellees. Frank W. Hunger, Assistant Attorney General, Lynne A. Battaglia, United States Attorney, Mark B. Stern, Civil Division, United States Department of Justice, Washington, DC, for Intervenor.
Before NIEMEYER, LUTTIG, and MICHAEL, Circuit Judges.
Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which LUTTIG and Judge MICHAEL joined.
The State of Maryland and two of its counties, Montgomery County and Baltimore County, (collectively, "Taxing Authorities") brought suit in state court to recover "in excess of $95,000" in state and county transfer and recordation taxes. The Taxing Authorities sued the Antonelli Creditors' Liquidating Trust ("Liquidating Trust") as transferor of three parcels of real property, as well as the three purchasers of those parcels. They also sued for transfer and recordation taxes in connection with other unspecified transfers by the Liquidating Trust. After removing the case to federal court pursuant to 28 U.S.C. § 1452, the defendants answered, contending, among other things, that the transfers were made pursuant to a bankruptcy plan confirmed by order of the bankruptcy court and that therefore, pursuant to the Bankruptcy Code, 11 U.S.C. § 1146(c) (), the transfers in question were exempt from state taxation.
On cross-motions for summary judgment, the district court held that the State of Maryland and Montgomery County are bound by the bankruptcy court's confirmation order and may not challenge it collaterally in a subsequent court proceeding. Because the reasonableness of the notice of the bankruptcy plan to Baltimore County was "questionable," however, the court ruled against Baltimore County on the merits, applying 11 U.S.C. § 1146(c).
On appeal, the Taxing Authorities argue that they were not required to object to the plan's provisions regarding recording taxes because they had insufficient notice of the plan's provisions and because they were not creditors for such taxes at the time. They claim, therefore, that they are not bound by the bankruptcy court's order confirming the plan. They also contend that 11 U.S.C. § 1146(c) exempts from taxation only those transfers to which the debtor was a party, not transfers from a non-debtor party, such as the Liquidating Trust, to third-party purchasers. Finally, they assert that they are immune from applicability of the bankruptcy court's order by reason of the Eleventh Amendment.
For reasons somewhat different from those articulated by the district court, we affirm.
In 1991, after a soured real estate market adversely affected the financial liquidity of Judith and Dominic F. Antonelli, Jr., who were involved in over 150 real estate projects, creditors filed petitions for involuntary bankruptcy against the Antonellis under Chapter 7 of the Bankruptcy Code. The Antonellis had nearly 2,000 creditors with over $200 million in claims and over $100 million in assets, consisting mostly of interests in real property. On the Antonellis' motion, the bankruptcy court converted the Chapter 7 proceeding into a Chapter 11 proceeding to allow the Antonellis to develop a plan of reorganization.
The creditors' committee and the Antonellis negotiated for months to develop a plan of reorganization, working through four distinct versions of a plan. Ultimately, the bankruptcy court confirmed the "Fourth Amended Joint and Consolidated Plan of Reorganization," which had been approved by holders of 93% of the unsecured claims. The bankruptcy court confirmed the plan by order dated November 13, 1992; the district court affirmed, In re Antonelli, 148 B.R. 443 (D.Md.1992); and we affirmed, 4 F.3d 984 (4th Cir.1993) (Table).
The approved plan of reorganization required that the Antonellis transfer substantially all of their property interests to the Liquidating Trust for liquidation "as rapidly as market conditions allow." By using a trust, the Antonellis and the creditors hoped to avoid the expense and delay of having the bankruptcy court separately approve each of more than 150 property sales. The trust agreement explicitly limited the function of the Liquidating Trust to "activities ... reasonably necessary to, and consistent with accomplishment of, [trust] purposes," which were:
liquidating the [trust property] as rapidly as market conditions allow, consistent with the objective of maximizing value and taking into consideration tax effects and business impediments, distributing the proceeds therefrom in accordance with the terms of this Agreement and the Plan, accelerating the process of conveying identified properties to Project Creditors ... and engaging in any and all other activities of the Trust which shall be incidental thereto. Proceeds from the liquidation of [trust property] shall be distributed by the Plan Committee in accordance with the terms of this Agreement.
While the plan thus created the Liquidating Trust to take title to property of the bankruptcy estate, to sell it, and to distribute the proceeds, the bankruptcy court retained jurisdiction over implementation of the plan.
Relying on 11 U.S.C. § 1146(c) (), paragraph 9.5 of the plan exempted from state taxes transfers of property both from the Antonellis to the Liquidating Trust and from the Liquidating Trust to third-party purchasers. The paragraph provided:
In accordance with Section 1146(c) of the Bankruptcy Code, neither the Bankruptcy Estate, the Debtors, the holders of Claims, the Custodian, the Liquidating Trust nor any third-party purchaser of assets of the Liquidating Trust shall be liable for any stamp tax or similar tax on the issuance, transfer or exchange of a security or any item of property, or the making or delivering of an instrument of transfer under the Plan, by or to the Bankruptcy Estate or the Debtors or by or to the Custodian or the Liquidating Trust.
The State of Maryland, Montgomery County, and Baltimore County were served with copies of the plan and related papers because all three entities were creditors of the estate for unpaid income and property taxes. Also, the State of Maryland and Montgomery County received additional copies of the plan in connection with an adversary action filed by the creditors' committee against them, as well as other states and municipalities, to declare that transfers from the Liquidating Trust to third-party purchasers would indeed be tax exempt. That action, however, was dismissed on motion of the State of Maryland and Montgomery County who alleged that the controversy was not ripe. The bankruptcy court observed that the proposed third-party transfers were not sufficiently "imminent" because, among other things, "the Plan must still be confirmed." In re Antonelli, 1992 WL 435879 at * 3 (Bankr.D.Md.1992).
One week after dismissing the adversary proceeding, the bankruptcy court held a confirmation hearing. None of the Taxing Authorities appeared at the hearing on confirmation of the proposed plan, and, after the court approved the plan by order dated November 13, 1992, none appealed to the district court.
In accordance with the plan, the Antonellis transferred their property to the Liquidating Trust, which began selling the property of the bankruptcy estate. In November 1993, it sold a residence in Montgomery County known as "Camberwell Down"; in June 1994 it sold a parcel of land adjacent to the Richie Pike Shopping Center in Montgomery County; and in July 1994 it sold the "Belmont Property" in Baltimore County. Deeds for these properties reflected the transfers from the Antonellis to the Liquidating Trust and from the Liquidating Trust to the third-party purchasers. All of these deeds claimed exemption from recordation, transfer, and stamp taxes. At the time of recordation, none of the Taxing Authorities sought to impose a transfer or recordation tax.
Almost a year later, however, in May 1995, the Taxing Authorities filed this action against the Liquidating Trust as well as the three purchasers of the properties located in Montgomery County and Baltimore County, seeking to recover more than $95,000 in state and county transfer and recordation taxes. The Taxing Authorities also sought to recover similar taxes in an unspecified amount in respect to other unspecified transfers. The defendants removed the case to the district court, and following cross-motions for summary judgment, the district court entered judgment in favor of the defendants.
With respect to the State of Maryland and Montgomery County, the district court ruled that they had sufficient notice of the plan's provisions and failed to take action to challenge them at the...
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