2003 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

7-18-2003

In Re: Hechinger

Precedential or Non-Precedential: Precedential

Docket No. 02-1917

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PRECEDENTIAL

Filed July 18, 2003

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 02-1917

IN RE: HECHINGER INVESTMENT

COMPANY OF DELAWARE, INC.,

Debtor

BALTIMORE COUNTY, MARYLAND;

MONTGOMERY COUNTY, MARYLAND;

PRINCE GEORGE’S COUNTY, MARYLAND;

STATE OF MARYLAND

v.

*HECHINGER LIQUIDATION TRUST

PATRICIA A. STAIANO,

Trustee

State of Maryland, Baltimore County, Maryland,

Montgomery County, Maryland, and

Prince George’s County, Maryland,

Appellants

*(Amended Pursuant to Clerk’s 6/10/02 Order)

ON APPEAL FROM THE UNITED STATES

DISTRICT COURT FOR THE

DISTRICT OF DELAWARE

(Dist. Court No. 01-cv-121)

District Court Judge: Gregory M. Sleet
Argued on December 16, 2002

Before: NYGAARD, ALITO, and McKEE, Circuit Judges.

(Opinion Filed: July 18, 2003)

EDWARD GILLISS

JOHN E. BEVERUNGEN

Courthouse, Second Floor

400 Washington Avenue

Towson, MD 21204

MARC HANSEN

CHARLES W. THOMPSON

JOANN ROBERTSON

County Office of Law

101 Monroe Street, 3rd Floor

Rockville, MD 20850

J. JOSEPH CURRAN, JR.

JULIA M. ANDREW (argued)

200 St. Paul Place

Baltimore, MD 21202

LEONARD L. LUCCHI

J. MICHAEL DOUGHERTY

County Administration Bldg.,

Rm. 5121

14741 Governor Oden Bowie Dr.

Upper Marlboro, MD 20772

Counsel for Appellants

PHILIP J. KATAUSKAS (argued)

DAVID B. STRATTON

ANNE MARIE SCHWAB

Pepper Hamilton LLP

3000 Two Logan Square

18th & Arch Streets

Philadelphia, PA 19103-2799

Counsel for Appellees

2
JAMES E. RYAN

JOEL D. BERTOCCHI

JAMES D. NEWBOLD

Office of the Attorney General

100 West Randolph St., 13th Fl.

Chicago, IL 60601

Attorneys for Amicus Curiae

State of Illinois

D. MICHAEL FISHER

CALVIN R. KOONS

JOHN G. KNORR, III

Office of the Attorney General

Appellate Litigation Section

15th Floor, Strawberry Square

Harrisburg, PA 17120

Attorneys for Amicus Curiae

Commonwealth of Pennsylvania

CHRISTINE GREGOIRE

ZACHARY MOSNER

Office of the Attorney General

900 Fourth Street, Suite 2000

Seattle, WA 98164

Attorneys for Amicus Curiae

State of Washington

OPINION OF THE COURT

ALITO, Circuit Judge:

The State of Maryland and three Maryland counties

(Baltimore, Montgomery, and Prince George’s) (collectively

the “Taxing Authorities”) appeal from an order of the United

States District Court for the District of Delaware affirming

two orders of the United States Bankruptcy Court for the

District of Delaware. The first of these Bankruptcy Court

orders declared that certain sales of real estate interests

proposed by Hechinger Investment Company of Delaware,

Inc. (“Hechinger”) would be exempt under 11 U.S.C.

§ 1146(c) from transfer and recording taxes imposed by the

3
Taxing Authorities. The second order directed the Taxing

Authorities to refund any transfer and recording taxes

previously paid by purchasers of the real estate interests

once the Bankruptcy Court confirmed Hechinger’s

reorganization plan. 

Agreeing with the only other court of appeals that has

decided the issue, NVR Homes, Inc. v. Clerks of the Circuit

Courts, 189 F.3d 442 (4th Cir. 1999), we hold that 11

U.S.C. § 1146(c) does not apply to real estate transactions

that occur prior to the confirmation of a plan under

Chapter 11 of the Bankruptcy Code. We therefore reverse

the order of the District Court and remand for further

proceedings consistent with this opinion.

I.

A.

The relevant facts are undisputed. Prior to its bankruptcy

and cessation of operations, Hechinger was a “retailer[ ] of

home and garden care products and services.” App. at 17.

In June 1999, Hechinger filed a voluntary petition for relief

pursuant to Chapter 11 of the Bankruptcy Code, and in

September of the same year, Hechinger announced its plan

to liquidate its assets and cease operations. 

In October 1999, Hechinger filed a motion in the

Bankruptcy Court requesting permission to sell its interests

in certain real estate pursuant to 11 U.S.C. §§ 363 and

365. Hechinger proposed to make these sales prior to the

confirmation of a plan of reorganization by the Bankruptcy

Court under 11 U.S.C. § 1129. The real estate interests at

issue were all located within the Taxing Authorities’

borders. Consequently, the Taxing Authorities — under

normal circumstances — would have been able to collect

transfer and recording taxes from the purchasers of those

interests. Hechinger’s motion sought a declaration by the

Bankruptcy Court that the proposed sales would be exempt

from these taxes on the ground that the sales constituted

“the making or delivery of . . . instrument[s] of transfer

under a plan confirmed under section 1129” of the

Bankruptcy Code and thus could “not be taxed under any

4
law imposing a stamp tax or similar tax.” 11 U.S.C.

§ 1146(c). 

In November 1999, Hechinger filed another motion

seeking the authority to sell its leasehold interest in real

estate located in Montgomery County, Maryland. As in its

October motion, Hechinger proposed to make this sale prior

to the confirmation of a reorganization plan, and Hechinger

again sought a declaration by the Bankruptcy Court that

the sale would not be subject to state and county transfer

and recording taxes. Both the October and November

motions were filed pursuant to Federal Rule of Bankruptcy

Procedure 9014. As required by Rule 9014, the Taxing

Authorities were served with the motions and informed of

their opportunity to enter objections in the Bankruptcy

Court. See Fed. R. Bankr. P. 9014(a)-(b). 

The Taxing Authorities subsequently filed such

objections. First, the Taxing Authorities claimed that the

Bankruptcy Court proceedings concerning the declarations

sought by Hechinger constituted a suit against the State of

Maryland under the Eleventh Amendment and were

therefore barred. Second, the Taxing Authorities maintained

that the proposed declarations would effectively enjoin the

collection of a tax imposed by state law in violation of the

Tax Injunction Act, 28 U.S.C. § 1341.1 Finally, the Taxing

1. The Taxing Authorities do not continue their argument concerning the

Tax Injunction Act on appeal. We are nonetheless required to raise the

issue on our own motion, as a determination that the Tax Injunction Act

precludes a suit deprives the federal courts of subject matter jurisdiction

over that action, and a state cannot waive the Tax Injunction Act’s

protection. See Behe v. Chester Cty. Bd. of Assessment Appeals, 952

F.2d 66, 68 (3d Cir. 1995); Hardwick v. Cuomo, 891 F.2d 1097, 1103-04

(3d Cir. 1989). It is well established, however, that the Tax Injunction

Act does not prevent a Bankruptcy Court from enforcing the provisions

of the Bankruptcy Code that affect the collection of state taxes. See, e.g.,

Adams v. Indiana, 795 F.2d 27, 29 (7th Cir. 1986) (stating that 11

U.S.C. § 362(a)(6)’s statement that a petition in bankruptcy operates as

a stay of “any act to collect, assess, or recover a claim against the debtor

that arose before the commencement of the case” bars a “state claiming

that a bankrupt owes pre-filing taxes . . . from [engaging in] efforts to

collect” during the pendency of the bankruptcy proceeding); Cal. State

Bd. of Equalization v. Goggin, 191 F.2d 726, 728 (9th Cir. 1951) (stating

5
Authorities argued that the proposed sales did not

constitute “deliver[ies] . . . of . . . instrument[s] of transfer

under a plan confirmed under section 1129” of the

Bankruptcy Code, as required by 11 U.S.C. § 1146(c), and

that the proposed sales were thus ineligible for the tax

exemption created by Section 1146(c). The Taxing

Authorities contended that a property interest that is sold

prior to the confirmation of a reorganization plan is not

transferred “under a plan confirmed under section 1129”

within the meaning of Section 1146(c) because a Chapter

11 plan must be confirmed before a property interest may

be said to be sold “under” such a plan. 

The Bankruptcy Court rejected the Taxing Authorities’

contentions and issued the requested declarations. Two

aspects of the Bankruptcy Court’s opinion are pertinent to

this appeal. First, the Bankruptcy Court held that

Hechinger’s motions seeking the declarations were not

“suits” within the meaning of the Eleventh Amendment.

Because the motions did not request “the turnover of

property already in possession of a state,” the Court

reasoned, “adjudication of the motions [did] not require the

Court to exercise jurisdiction over Maryland.” App. at 27,

47. Second, the Bankruptcy Court held that Hechinger’s

proposed sales were “under a plan confirmed under section

1129” within the meaning of 11 U.S.C. § 1146(c), since “a

transfer . . . that is essential to or an important component

of the plan process, even if it occurs prior to plan

confirmation, is ‘under a plan’ within the meaning of

§ 1146(c).” Id. at 47. Hence, the Bankruptcy Court

concluded, the proposed sales were exempt from the Taxing

Authorities’ transfer and recording taxes. 

The Bankruptcy Court’s order made the operation of the

tax exemption in Section 1146(c) conditional upon that

that the Tax Injunction Act “did not abridge the power specifically

granted to the bankruptcy court[s] to make such judgments as may be

necessary for the enforcement of the provisions of the Bankruptcy Act”).

Accordingly, the Tax Injunction Act did not bar the Bankruptcy Court

from declaring the real estate transactions at issue here to be exempt

from state transfer and recording taxes and requiring refunds of such

taxes where appropriate. 

6
court’s eventual confirmation of a Chapter 11 plan. The

Bankruptcy Court accordingly ordered Hechinger to escrow

proceeds from the sales sufficient to pay the transfer and

recording taxes that the purchasers would have been

required to pay absent the Section 1146(c) exemption. 

Hechinger subsequently sold an unknown number of real

estate interests pursuant to the authorization granted by

the Bankruptcy Court, and the purchasers of those

interests paid transfer and recording taxes to the Taxing

Authorities. In October 2000, Hechinger filed a motion

requesting that the Bankruptcy Court clarify its prior order.

Hechinger asked the Bankruptcy Court to instruct the

Taxing Authorities to refund the taxes paid by the

purchasers as soon as the Bankruptcy Court confirmed

Hechinger’s proposed plan. The Bankruptcy Court granted

Hechinger’s motion in January 2001, and directed the

Taxing Authorities to refund any transfer and recording

taxes paid by the purchasers once the Bankruptcy Court

confirmed Hechinger’s reorganization plan. The Taxing

Authorities took an appeal to the District Court. While the

Taxing Authorities’ appeal to the District Court was still

pending, the Bankruptcy Court confirmed a plan of

reorganization. In pertinent part, the plan required

Hechinger to transfer all of its assets to the Hechinger

Liquidation Trust (the “Trust”). 

B.

In March 2002, the District Court affirmed the

Bankruptcy Court’s orders for the reasons stated by the

Bankruptcy Court. On the issue of the Taxing Authorities’

sovereign immunity, the District Court held that the

Eleventh Amendment did not preclude the issuance of the

declarations because they did not mandate a “direct

recovery from [a] state’s treasury” and thus did not require

the Bankruptcy Court to “exercise jurisdiction over the

State” of Maryland. Id. at 10. On the question whether 11

U.S.C. § 1146(c) applied to the real estate sales at issue, the

District Court held that “it is the fact of plan confirmation,

rather than its timing, that is critical” to a determination of

whether a sale is “under a plan confirmed under section

1129” of the Bankruptcy Code. Id. at 13. So long as a plan

7
authorizing a sale is eventually confirmed, the District

Court reasoned, the proceeds of the sale are not subject to

transfer and recording taxes. Thus, the District Court held,

it was proper for the Bankruptcy Court to order Hechinger

to escrow the sale proceeds until such time as the

Bankruptcy Court made a final decision concerning

Hechinger’s proposed plan. The Taxing Authorities appealed

the District Court’s decision to this court. In June 2002, we

granted Hechinger’s motion to substitute the Trust for

Hechinger as the appellee in this appeal. 

C.

On appeal, the Taxing Authorities make two contentions.

First, they claim that the Rule 9014 proceedings concerning

the propriety of the declarations violated the Eleventh

Amendment. Second, they maintain that Section 1146(c)

does not exempt sales of real estate interests from state

transfer and recording taxes where those sales are made

prior to the confirmation of a plan. 

As we detail further below, we believe that the

Bankruptcy Court and the District Court erred in holding

that 11 U.S.C. § 1146(c) exempts the real estate sales at

issue here from the Taxing Authorities’ transfer and

recording taxes. In view of this holding, we find it

unnecessary to reach the question whether the Bankruptcy

Court’s orders declaring the transactions to be tax-exempt

violated the Eleventh Amendment. We will first explain why

we are not required to reach the Eleventh Amendment

question, and we will then show why Section 1146(c) does

not exempt Hechinger’s proposed transactions from the

taxes at issue. 

II.

As noted above, the Taxing Authorities claim that the

Trust’s motions seeking the declarations issued by the

Bankruptcy Court were “suits . . . commenced or

prosecuted against one of the United States” within the

meaning of the Eleventh Amendment. The Supreme Court

has stated that where a defendant successfully

demonstrates that the Eleventh Amendment precludes a

8
suit, the court in which the plaintiff filed the action lacks

subject matter jurisdiction over that action. See Seminole

Tribe v. Florida, 517 U.S. 44, 64 (1996) (stating that the

Eleventh Amendment stands “for the constitutional

principle that state sovereign immunity limit[s] the federal

courts’ jurisdiction under Article III”); Blake v. Kline, 612

F.2d 718, 721 (3d Cir. 1979) (“The eleventh amendment

has been interpreted to bar jurisdictionally the federal

courts from entertaining suits for damages when a state is

the real party in interest.”). When subject matter

jurisdiction is at issue, a federal court is generally required

to reach the jurisdictional question before turning to the

merits. See Steel Co. v. Citizens for a Better Env’t., 523 U.S.

83, 93-95 (1998) (rejecting the position previously taken by

several courts of appeals that found it “proper to proceed

immediately to the merits question” in a case “despite

jurisdictional objections”); Larsen v. Senate of the Commw.,

152 F.3d 240, 245 (3d Cir. 1998) (“A court that is without

proper jurisdiction cannot proceed at all, and must merely

note the jurisdictional defect and dismiss the suit.”). 

Eleventh Amendment immunity, however, has features

that are atypical of doctrines that divest federal courts of

subject matter jurisdiction. While “no action of the parties

can confer subject-matter jurisdiction upon a federal

court,” Insurance Corp. of Ireland, Ltd. v. Compagnie des

Bauxites de Guinee, 456 U.S. 694, 702 (1982), a state may

waive its Eleventh Amendment immunity. See Atascadero

State Hosp. v. Scanlon, 473 U.S. 234, 238 (1985) (“[I]f a

State waives its immunity and consents to suit in federal

court, the Eleventh Amendment does not bar the action.”).

Similarly, while a federal court is obligated to consider

whether it possesses subject-matter jurisdiction even if the

issue is not raised by the parties, see Insurance Corp., 456

U.S. at 702, a federal court need not address the issue of

sovereign immunity if neither party brings it to the

attention of the court. See Wisconsin Dep’t. of Corrections v.

Schacht, 524 U.S. 381, 389 (1998) (“[T]he Eleventh

Amendment grants the State a legal power to assert a

sovereign immunity defense should it choose to do so. The

state can waive the defense. Nor need a court raise the

defect on its own. Unless the State raises the matter, a

court can ignore it.”) (internal citations omitted). 

9
These distinctions between Eleventh Amendment

immunity and other doctrines that divest federal courts of

subject matter jurisdiction have led at least two other

courts of appeals to conclude that where a defendant

argues that an action is barred by sovereign immunity, a

federal court is not required to resolve that issue before

adjudicating the merits of the action. See United States v.

SC Bus. & Tech. Inst., Inc., 173 F.3d 890, 891 (D.C. Cir.

1999); Parella v. Ret. Bd. of the R.I. Employees’ Ret. Sys.,

173 F.3d 46, 53-57 (1st Cir. 1999). In addition, two other

courts of appeals have bypassed Eleventh Amendment

questions and decided appeals on other grounds pursuant

to the doctrine that courts should avoid deciding

constitutional questions whenever possible. See Tyler v.

Douglas, 280 F.3d 116, 121 (2d Cir. 2001); Floyd v.

Thompson, 227 F.3d 1029, 1034-35 (7th Cir. 2000). Other

courts of appeals, however, have held that questions of

sovereign immunity must be decided before reaching the

merits of an appeal. See United States v. Texas Tech Univ.,

171 F.3d 279, 287 (5th Cir. 1999); Seaborn v. Dept. of

Corrections, 143 F.3d 1405, 1407 (11th Cir. 1998). 

Although there are reasonable arguments on both sides

of the issue, we agree with the decisions of the District of

Columbia and First Circuits noted above, and we therefore

hold, for two reasons, that we are not required in this case

to address the Eleventh Amendment issue before

proceeding to the merits. 

First, the premise of the holding in Steel Co. — that a

federal court has no power to entertain an action if Article

III jurisdiction is lacking — simply does not apply when the

jurisdictional defect is the bar erected by the Eleventh

Amendment. As noted, a federal court is not necessarily

devoid of jurisdiction to entertain a claim to which the

Eleventh Amendment applies. See Schact, 524 U.S. at 389.

“Rather, the Eleventh Amendment grants [the] State a legal

power to assert a sovereign immunity defense should it

choose to do so.” Id. Since a federal court possesses the

power to entertain such a claim if the state opts to waive or

merely neglects to assert its Eleventh Amendment defense,

it does not follow from the reasoning of Steel Co. that a

federal court must address an asserted Eleventh

10
Amendment defense before considering the merits of a case.

See SC Bus. & Tech., 173 F.3d at 893 (“Steel Co.’s rule is

premised on a court’s lack of power to reach the merits

without establishing its jurisdiction. In the Eleventh

Amendment context, where a court lacks power only if a

state claims that it does, it is arguable that we have no

obligation to decide the Eleventh Amendment issue first if

the state does not demand that we do so.”); Spicer v. Hilton,

618 F.2d 232, 241 n.7 (3d Cir. 1980) (noting the paradox

inherent in the fact that “it is clearly established that the

state’s [sovereign] immunity can be waived by the state,

despite the principle that a waiver cannot confer

jurisdiction on a court which lacks subject matter

jurisdiction”). 

Second, we believe that the Supreme Court’s reasoning in

Calderon v. Ashmus, 523 U.S. 740 (1998), supports the

position we take here. The plaintiff in Ashmus filed a class

action challenging the application of certain time limits on

the filing of habeas corpus petitions in capital cases. The

District Court granted declaratory and injunctive relief, the

court of appeals affirmed, and the Supreme Court granted

certiorari on the issues of whether the suit was barred by

the Eleventh Amendment and whether the injunction

issued by the District Court violated the First Amendment.

After granting review, the Supreme Court on its own

motion raised the question whether the named plaintiff had

standing under Article III to request a declaratory

judgment, and the Court stated that it was required to

decide this standing question before reaching the Eleventh

Amendment and First Amendment issues. See Ashmus, 523

U.S. at 745 (“We granted certiorari on both the Eleventh

Amendment and First Amendment issues, . . . but in

keeping with our precedents, have decided that we must

first address whether this action for a declaratory judgment

is the sort of ‘Article III’ ‘case or controversy’ to which

federal courts are limited.”) (citing FW/PBS, Inc. v. Dallas,

493 U.S. 215, 230-31 (1990)). 

The Supreme Court’s treatment of the Article III standing

issue in Ashmus is important for present purposes because

in Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574 (1999),

the Court held that federal courts are not generally

11
obligated to address “jurisdictional issues” in any particular

order. See Ruhrgas, 526 U.S. at 584 (“While Steel Co.

reasoned that subject-matter jurisdiction necessarily

precedes a ruling on the merits, the same principle does

not dictate a sequencing of jurisdictional issues.”). The

language of the Court in Ruhrgas makes it clear that, by

“jurisdictional issues,” the Court meant those issues that a

federal court must address before it possesses the power to

reach the merits of an action. See id. at 583 (observing that

“Steel Co. reasoned that subject-matter jurisdiction

necessarily precedes a ruling on the merits”). If the

Eleventh Amendment issue in Ashmus had been one of the

“jurisdictional issues” that must be decided before moving

on to the merits, the Ashmus Court would not have been

obligated to reach the Article III standing question before

turning to the Eleventh Amendment question. The Ashmus

Court’s statement that it was required to reach the

standing issue first, however, suggests that Steel Co. does

not require a federal court to consider an asserted Eleventh

Amendment defense before reaching the merits. 

This conclusion does not obscure the distinction between

a defense based on sovereign immunity and a defense

relating to the merits of an action. A sovereign immunity

defense differs from a defense on the merits in the key

respect that a defendant may raise the defense of sovereign

immunity at any time in the absence of an explicit waiver.

See Edelman v. Jordan, 415 U.S. 651, 678 (1974) (stating

that the “Eleventh Amendment defense sufficiently partakes

of the nature of a jurisdictional bar so that it need not be

raised in the trial court”); Ford Motor Co. v. Dept. of

Treasury, 323 U.S. 459, 467 (1945) (“The Eleventh

Amendment declares a policy and sets forth an explicit

limitation on federal judicial power of such compelling force

that this Court will consider the issue arising under this

Amendment in this case even though urged for the first

time in this Court.”). Hence, the notion that the doctrine of

sovereign immunity is in some sense a “jurisdictional bar”

retains significance. 

For these reasons, we hold that we are not required to

determine whether the Eleventh Amendment bars the

Trust’s action against the Taxing Authorities prior to

12
reaching the question whether the real estate sales at issue

here are protected by the 11 U.S.C. § 1146(c) tax

exemption. We therefore turn to the primary issue in this

appeal, the proper interpretation of Section 1146(c).

III.

A.

Title 11 United States Code, § 1146(c), provides as

follows: 

The issuance, transfer, or exchange of a security, or

the making or delivery of an (instrument of transfer

under a plan confirmed under section 1129 of this

title, may not be taxed under any law imposing a

stamp tax or similar tax. 

11 U.S.C. § 1146(c). There is no dispute that the property

sales at issue here involved “the making or delivery of . . .

instrument[s] of transfer” or that the Taxing Authorities’

transfer and recording taxes are “stamp” taxes or “similar”

taxes. Nor is there any dispute that approval of the sales

was sought under the authority of 11 U.S.C. §§ 363 and

365, not 11 U.S.C. § 1129, and that the Bankruptcy Court

had not confirmed a “plan” under Section 1129 at the time

of the sales, although it later did so. The disputed question

is whether the sales were carried out “under” the eventually

confirmed plan. 

The Trust argues that the sales in question here occurred

“under” the plan even though the plan had not been

confirmed at the time of the sales. According to the Trust,

a transfer occurs “under a plan confirmed” if two criteria

are met. First, the transfer must be “necessary to effect the

confirmation of a plan.” Brief for Appellee at 18.2 Second,

2. The Trust does not provide an explicit definition of the phrase

“necessary to effect the confirmation of a plan,” but the Trust’s citations

to the Bankruptcy Court’s opinion suggest that a “transfer that is

necessary to effect the confirmation of a plan” is a transfer without

which it would be impossible or at least difficult to pay a debtor’s

creditors and thus difficult to gain the creditors’ approval of a proposed

13
the Bankruptcy Court must eventually confirm a Chapter

11 plan that retroactively authorizes the transfer at issue.

See Brief for Appellee at 19. Thus, under the Trust’s

reading of Section 1146(c), a debtor who sells real estate

interests before the confirmation of a plan may still benefit

from the Section 1146(c) tax exemption so long as the

Bankruptcy Court eventually confirms a plan that covers

the sale of those interests.

B.

In interpreting Section 1146(c), we look first to the

language of the provision. See Health Maintenance Org. v.

Whitman, 72 F.3d 1123, 1128 (3d Cir. 1995); In re Segal,

57 F.3d 342, 345 (3d Cir. 1995). As noted above, Section

1146(c) speaks of the making or delivery of an instrument

of transfer “under a plan confirmed under [11 U.S.C.

§ 1129].” The preposition “under” is of course very common,

and it can have many different meanings in different

contexts. See Webster’s Third New International Dictionary

of the English Language, Unabridged 2487 (1993) (listing 13

different definitions); Random House Dictionary of the

English Language 1543 (unabridged ed. 1967) (listing 27

definitions). After considering all of these definitions, we

believe that the most natural reading of the phrase “under

a plan confirmed” in 11 U.S.C. § 1146(c) is “authorized” by

such a plan. See Random House Dictionary at 1543. When

an action is said to be taken “under” a provision of law or

a document having legal effect, what is generally meant is

that the action is “authorized” by the provision of law or

legal document. Thus, if a claim is asserted “under” 42

U.S.C. § 1983, Section 1983 provides the authority for the

claim. If a motion is made “under” Fed. R. Civ. P. 12(b)(6),

that rule provides the authority for the motion. If benefits

are paid “under” a pension or welfare plan, the payments

are authorized by the plan. 

plan. See id. at 27 (stating that the real estate transfers as to which the

Trust claimed a Section 1146(c) tax exemption were “necessary to reduce

[Hechinger’s] indebtedness, improve liquidity, and to facilitate the

formulation and ultimate confirmation of a chapter 11 plan”) (quoting

App. at 18). 

14
On this reading, if an instrument of transfer is made or

delivered “under” a plan, the plan must provide the

authority for the transaction. But the transfers at issue in

this case were not made under the authority of the plan

that was eventually confirmed. Rather, they were made

under the authority of 11 U.S.C. §§ 363 and 365. Since the

plan had not been confirmed at the time of the transfers,

the plan could not provide the legal authority for the

transfers, and the legality of those transfers was not

dependent upon eventual confirmation. 

Although we believe that “authorized by” is the most

natural reading of the term “under” in the phrase “under a

plan confirmed,” we do not go so far as to say that this is

the only plausible interpretation of that term. For example,

an accepted definition of the preposition “under” is “in

accordance with,” and “accordance” may mean “agreement.”

Random House Dictionary at 9, 1543. Thus, we cannot say

that the language of Section 1146(c) rules out the

possibility that “under a plan confirmed” means “in

agreement with a plan confirmed.” On this reading, a sale

of real estate could be said to be “in accordance” with a

plan if the sale, although actually carried out under the

authority of some other provision of law (such as 11 U.S.C.

§§ 363 or 365), is later listed as part of a plan that is

confirmed. Nevertheless, we find at least two other reasons

for interpreting the phrase “under a plan confirmed” to

mean “authorized by” such a plan.3

3. The dissent points to provisions of the Bankruptcy Code in which the

term “authorized” is used and argues that if Congress had meant “under

a plan” to mean “authorized by a plan,” it would have used the latter

phrase. Dissent at 25. We reject this argument. There can be no doubt

that “under” may mean “authorized by.” In some contexts, the mere word

“under” may be sufficient to convey this meaning, whereas in others an

explicit reference to the concept of legal authority may be necessary.

Recasting 11 U.S.C. § 1146(c) to refer specifically to the concept of legal

authority results in cumbersome phraseology: 

The issuance, transfer, or exchange of a security, or the making or

delivery of an instrument of transfer under the authority of a plan

confirmed under the authority of section 1129 of this title, may not

be taxed under the authority of any law imposing a stamp tax or

similar tax. 

15
First, that reading fits best with the remaining language

of Section 1146(c). It is a “normal rule of statutory

construction that ‘identical words used in different parts of

the same act are intended to have the same meaning.’ ”

Sorenson v. Sec. of the Treasury, 475 U.S. 851, 860 (1986)

(quoting Helvering v. Stockholms Enskilda Bank, 293 U.S.

84, 87 (1934)). This canon logically has added force where

identical words appear more than once in the same

provision. Section 1146(c) uses the word “under” three

times in the same sentence. As noted above, Section 1146(c)

provides that “the making or delivery of an instrument of

transfer under a plan confirmed under section 1129 of this

title, may not be taxed under any law imposing a stamp tax

or similar tax.” 11 U.S.C. § 1146(c) (emphasis added). It is

apparent that the term “under” in “confirmed under section

1129” means “confirmed pursuant to the authority granted

by Section 1129.” It is similarly clear that the term “under”

in “may not be taxed under any law . . .” means “may not

be taxed pursuant to the authority of ” any such law.

Consequently, reading the first “under” in this sentence —

in “under a plan confirmed” — to mean “pursuant to the

authority conferred by such a plan” gives the term “under”

a single, consistent meaning throughout Section 1146(c).4

By contrast, if the term “authorized” were omitted from some of the

provisions to which the dissent points, the statutory language would

make no sense. For example, the dissent relies on 11 U.S.C. § 101(1),

which defines the term “accountant” to mean an “accountant authorized

under applicable law to practice public accounting.” In this context, it

would have been awkward, to say the least, if an “accountant” were

defined as an “accountant . . . under applicable law to practice public

accounting.” 

4. The dissent argues that the term “under” in 11 U.S.C. § 1146(c) may

be consistently read to mean “in agreement with,” but not “pursuant to

the authority of.” Dissent at 26. We cannot agree. For example, on the

dissent’s reading, the reference to transfers that are “taxed under any

law imposing a stamp tax or similar tax” would mean that the law in

question would not actually provide the legal authority for the tax but

that the tax would be “in agreement” with the law. That reading would

make no sense and is clearly incorrect. “[T]axed under [a] law” plainly

means taxed pursuant to the authority of that law. 

16
Second, this interpretation gives the phrase “under a

plan confirmed” the same meaning as an identical phrase

in another provision of the Bankruptcy Code, 11 U.S.C.

§ 365(g). This provision speaks of the assumption of an

executory contract or unexpired lease “under a plan

confirmed under chapter 9, 11, 12, or 13 of this title.” 11

U.S.C. § 365(g). It seems clear that this language means a

plan that is confirmed pursuant to the authority conferred

by those chapters. For these reasons, we believe that the

phrase “under a plan confirmed” in 11 U.S.C. § 1146(c) was

most likely intended to mean “authorized by a plan

confirmed.” 

Even if the language of Section 1146(c) is ambiguous,

however, two important canons of construction support our

interpretation. First, tax exemption provisions are to be

strictly construed. See United States v. Centennial Savings

Bank FSB, 499 U.S. 573, 583 (1991) (“[T]ax-exemption and

. . . deferral provisions are to be construed narrowly.”);

United States v. Wells Fargo Bank, 485 U.S. 351, 354

(1988) (“[E]xemptions from taxation . . . must be

unambiguously proved.”); United States Trust Co. v.

Helvering, 307 U.S. 57, 60 (1939) (“Exemptions from

taxation do not rest upon implication.”). Second, federal

laws that interfere with a state’s taxation scheme must be

narrowly construed in favor of the state. See Nat’l. Private

Truck Council v. Oklahoma Tax Comm’n., 515 U.S. 582, 590

(1995) (noting the “strong background presumption against

[federal] interference with state taxation”); California State

Bd. of Equalization v. Sierra Summit, Inc., 490 U.S. 844,

851-52 (1989) (“[A] court must proceed carefully when

asked to recognize an exemption from state taxation that

Congress has not clearly expressed.”); NVR Homes, Inc. v.

Clerks of the Circuit Courts, 189 F.3d 442, 459 (4th Cir.

1999) (Wilkinson, J., concurring) (“If Congress wished to

exempt a bankrupt from state and municipal taxation, ‘the

intention would be clearly expressed, not left to be collected

or inferred from disputable considerations of convenience in

administering the estate of the bankrupt.’ ”) (quoting Swarts

v. Hammer, 194 U.S. 441, 444 (1904)). Since Section

1146(c) both constitutes a tax exemption and interferes

with the State of Maryland’s scheme of property taxation,

we must construe Section 1146(c) in the Taxing Authorities’

17
favor.5

 All of these reasons weigh in favor of interpreting the

phrase “under a plan confirmed” in 11 U.S.C. § 1146(c) to

mean “made pursuant to the authority conferred by such a

plan,” and since an unconfirmed plan cannot confer such

authority, this interpretation means that a transfer made

prior to plan confirmation cannot qualify for tax exemption

under 11 U.S.C. § 1146(c). 

C.

We have considered the alternative interpretation

advanced by the Trust, but we reject that construction. As

noted above, the Trust argues that “made under a plan

confirmed” means “necessary for the confirmation of a plan”

that is eventually confirmed. Although the preposition

“under” can have many different meanings, no accepted

definition of that term corresponds to the meaning that the

Trust advocates. 

Of the many possible definitions of the preposition

“under,” the Trust points to the following as supporting its

position:

“covered by”, “beneath the heading or within the

category of ”, “subject to the authority, direction, or

supervision of ”, “protected, controlled, or watched by”,

“authorized, warranted, or attested by”, or “in

accordance with”. 

Brief for Appellee at 25 n.8 (quoting Random House

Unabridged Dictionary 2059 (2d ed. 1993)). But not one of

these definitions corresponds to the Trust’s definition, i.e.,

“necessary for.” For example, the statement that a sale is

“covered by” a plan that is later confirmed would

5. The dissent’s principal response to these canons is that they do not

apply because the interpretation they yield is inconsistent with

Congress’s intent. Dissent at 26-28. However, the dissent does not

provide a scintilla of evidence from the legislative history that supports

this reading. Instead, the dissent merely quotes the view of a Bankruptcy

Court that our interpretation would frustrate reorganization in a large

number of cases. However, our interpretation was adopted in 1999 by

the Fourth Circuit, and we see no indication that the Fourth Circuit’s

decision has had dire effects. 

18
presumably mean that the sale is required or permitted by

the terms of the plan. Thus, the statement that the sale is

“covered by” the plan would not in any way suggest that

the sale was “necessary for” confirmation of the plan.

Similarly, the statement that a sale is “in accordance with”

a plan would not suggest that the sale was necessary for

confirmation. The interpretation advanced by the Trust and

adopted by the Bankruptcy and District Courts simply

cannot be squared with the statutory language. 

In support of its interpretation, the Trust cites the

Second Circuit’s decision in In re Jacoby-Bender, 758 F.2d

840 (2d Cir. 1985), and numerous District Court and

Bankruptcy Court decisions relying on Jacoby-Bender. See

Brief for Appellee at 26 (citing In re Baldwin League of

Indep. Sch., 110 B.R. 125, 127 (S.D.N.Y. 1990); In re Smoss

Enters. Corp., 54 B.R. 950, 951 (E.D.N.Y. 1985); In re Lopez

Dev., Inc., 154 B.R. 607, 609 n.13 (Bankr. S.D. Fla. 1993);

In re Permar Provisions, Inc., 79 B.R. 530, 534 (Bankr.

E.D.N.Y. 1987)). The Trust characterizes the decision in

Jacoby-Bender as holding that “a sale [is] exempt from

taxes under § 1146(c) so long as the sale [is] ‘necessary to

the consummation of a plan.’ ” Id. at 26 (quoting JacobyBender, 758 F.2d at 842). 

The Trust’s quotation of the Second Circuit’s language is

correct, but the conclusion that the Trust draws from the

quoted language is not. In Jacoby-Bender, a Bankruptcy

Court confirmed a debtor’s proposed reorganization plan

pursuant to 11 U.S.C. § 1129. The debtor subsequently

sold real property located in New York State and claimed

that the Section 1146(c) tax exemption protected the sale

from state real property transfer taxes because the sale was

authorized by the confirmed plan. The state argued that the

confirmed plan did not authorize the sale “because the plan

did not mention any instrument of transfer and did not give

the debtor the authority to make the specific sale.” JacobyBender, 758 F.2d at 841. The Second Circuit disagreed with

the state, holding that since Section 1146(c) “does not

require that the reorganization plan include specifics” and

the sale at issue was “necessary to the consummation of

[the] plan,” the confirmed plan authorized the sale. Id. The

Jacoby-Bender decision thus resolved the issue of whether

19
the sale was authorized by the terms of the previously

confirmed plan, not whether the sale was necessary to

achieving the plan’s confirmation. The Second Circuit’s

statement that the debtor’s sale of real property was

“necessary to the consummation of the plan” simply meant

that the language of the plan, or the implications thereof,

required the sale to occur. Accordingly, Jacoby-Bender does

not support the proposition that Section 1146(c) protects

pre-confirmation transfers that are necessary or essential to

the subsequent confirmation of a plan. See also NVR

Homes, 189 F.3d at 456 (disapproving the practice of

“extend[ing] the Second Circuit’s language and alter[ing]

Jacoby-Bender’s holding, changing the test from ‘necessary

to the consummation of a plan,’ to ‘necessary to the

confirmation of a plan’ ”). Since we disagree with the Trust’s

reading of the Jacoby-Bender decision, we also disagree

with the District Court and Bankruptcy Court decisions

that have adopted the Trust’s reading. 

The Trust argues that the language of other sections of

the Bankruptcy Code supports its interpretation of Section

1146(c). The Trust approvingly quotes the Bankruptcy

Court’s statement that “[w]hen Congress wants to impose a

temporal condition on a bankruptcy transaction, it does so

expressly.” App. at 42 (citing 11 U.S.C. § 1104(a)

(authorizing a Bankruptcy Court to appoint a trustee “[a]t

any time after the commencement of the case but before

confirmation of a plan”); 11 U.S.C. § 1121(b) (“[O]nly the

debtor may file a plan until after 120 days after the date of

the order for relief under this chapter.”)). We are not

impressed with this argument. If, as we conclude, the

phrase “under a plan confirmed” means “authorized by a

plan confirmed,” no “temporal” issue is raised, because it is

beyond dispute that the transfers at issue were not made

on the authority of a plan but on the authority of other

provisions of the Bankruptcy Code. Even if no plan had

ever been confirmed, that would not have called into

question the validity of the transfers. 

The Trust finally maintains that permitting preconfirmation transfers to benefit from the Section 1146(c)

tax exemption would best implement the policies underlying

Chapter 11 of the Bankruptcy Code. The Trust contends

20
that Congress “enacted § 1146(c) to encourage chapter 11

plans by providing chapter 11 debtors with tax relief when

they are compelled by business realities to sell certain

assets.” Brief for Appellee at 21. Limiting the Section

1146(c) tax exemption to “post-confirmation transfers,” the

Trust contends, would not serve Congress’s purposes,

because such an approach would not adequately assist

debtors in obtaining creditors’ approval of proposed

reorganization plans. 

We are not persuaded by this argument. Needless to say,

“it is not for us to substitute our view of . . . policy for the

legislation which has been passed by Congress.” United

Parcel Serv., Inc. v. United States Postal Serv., Inc., 604 F.2d

1370, 1381 n.16 (3d Cir. 1979). Moreover, as is often the

case in disputes about the interpretation of legislation that

affects the economic interests of different groups, the

opposing sides both cite policies that Congress might have

wished to further when it enacted the law at issue. In

opposition to the Trust’s policy arguments, the amici curiae

note that “limiting the [Section 1146(c)] exemption to

transfers under a confirmed plan . . . create[s] an incentive

for early confirmation.” Brief for Amici Curiae at 11. In

addition, the Taxing Authorities’ preferred interpretation

limits the Bankruptcy Code’s interference with state

revenue collection. See In re 310 Assocs., 282 B.R. 295,

299 (S.D.N.Y. 2002) (stating that a taxing authority “should

not be required to wait until some indeterminate time when

there may be a plan before collecting the taxes which it was

entitled to collect at the time of the transfer”); see also

Nat’l. Private Truck Council v. Oklahoma Tax Comm’n., 515

U.S. 582, 590 (1995) (noting the “strong background

presumption against [federal] interference with state

taxation”).

D.

For all these reasons, we hold that a real estate

transaction is made “under a plan confirmed under section

1129” only where the sale is authorized by the terms of a

previously confirmed Chapter 11 plan. Since the real estate

transactions at issue here were made pursuant to the

authority conferred by other Bankruptcy Code provisions

21
and occurred before the confirmation of a plan, those

transactions were not entitled to the Section 1146(c)

exemption from stamp taxes and similar taxes. 

IV.

For the reasons explained above, we reverse the

judgment of the District Court, and remand the case for

further proceedings consistent with this opinion.

22
NYGAARD, Circuit Judge, Dissenting:

Although this all may at first appear to be a “splitting of

grammatical hairs,” I believe that the majority’s

misinterpretation of 11 U.S.C. § 1146(c) “under a plan

confirmed,” of sufficient significance to warrant separately

expressing my views. Hence, I dissent. I do not think this

phrase places a temporal restriction on the qualifying

transactions. Instead, I read the phrase to be a description

of eligible transfers—those under a plan confirmed—

whether the transfer occurred before or after confirmation.

As the Bankruptcy Court and District Court did in this

case, I look to the structure and purpose of the bankruptcy

code, and conclude that the transfers here should be

excluded from taxation under § 1146(c). 

I. § 1146(c) is Ambiguous

“We begin every statutory interpretation by looking to the

plain language of the statute. When the language is clear,

no further inquiry is necessary unless applying the plain

language leads to an absurd result.” In Re: Resorts Int’l,

Inc., 181 F.3d 505, 515 (3d Cir. 1999) (citations omitted).

However, even where the statutory language initially

appears plain, application of the statute may reveal its

ambiguity. See e.g., United States v. Doe, 980 F.2d 876,

877 (3d Cir. 1992). This is such a case. Although the

statute might be read to apply only to those transactions

that take place following confirmation, this case illustrates

the ambiguity of § 1146(c). At oral argument the parties

averred that there was a proposed plan at the time the

Bankruptcy Court approved these transactions. The Court

subsequently confirmed the plan. Therefore, the

transactions, though pre-confirmation, took place “under a

plan confirmed.” 

Reduced to its most basic elements, § 1146(c) states that,

“the making or delivery of an instrument of transfer . . .

may not be taxed under any law imposing a stamp tax or

similar tax.” But not every “instrument of transfer” is

excluded from taxation. Section 1146(c) only excludes those

“under a plan confirmed under section 1129.” Although the

statute uses the past tense of “confirm,” the statute need

23
not be read to place a temporal restriction on when the

confirmation of the plan must take place, just that the plan

must at some point be confirmed for the transfer to be

exempt. To be unambiguous, the statute would need to

contain an auxiliary verb stating the temporal restriction.

For example, “under a plan that was confirmed under

§ 1129,” or “under a plan that will be confirmed under

§ 1129.” Without such a clarification the statute can just as

plausibly be read as a description of eligible transfers, those

“under a plan confirmed” regardless of when the plan is

confirmed. 

II. Statutory Interpretation

A. “Under a plan confirmed”

Lacking an auxiliary verb to place a temporal restriction

on the exemption, the parties struggle to define the word

“under” in the statute. I start with what “under” in “under

a plan” in § 1146(c) does not mean. The Appellants define

“under” to create a temporal restriction. They argue “under”

means “authorized by.” Here, the Bankruptcy Court

approved the transactions under § 363. Therefore, since the

transactions here were not “authorized by” the confirmed

plan, they are not “under a plan confirmed.” The majority

agrees that, among the many definitions of “under,”

“authorized” is the meaning of “under” in § 1146(c). See

Majority, supra at III.B. 

While “authorized by” is undoubtably one of the

meanings of “under,” it is not unambiguously the meaning

of “under” throughout § 1146(c). When Congress clearly

meant “authorized” in the code, it used “authorized.” In at

least nineteen sections of the code, Congress used

“authorized,” and in several sections it even used

“authorized under.” See e.g., 11 U.S.C. § 101(1)

(“ ‘accountant’ means accountant authorized under

applicable law”); 11 U.S.C. § 362(b)(16) (“participate in

programs authorized under such Act”); 11 U.S.C. § 363(c)(2)

(“if the business of the debtor is authorized to be operated

under [various] section[s]”; 11 U.S.C. § 541(b) (“participate

in programs authorized under the Higher Education Act”).

This illustrates that “under” cannot be read in isolation. For

24
example, “under” in “under a plan” may have a different

meaning than “under” in “authorized under.” 

More important, the majority’s reading of “under a plan”

cannot be consistently applied throughout the bankruptcy

code, particularly in reference to confirmation. The code

accepts that some transactions may take place prior to

confirmation and still be “under a plan.” Section 1129 sets

out the requirements for confirmation, including: “(a) The

court shall confirm a plan only if . . . (4) Any payment made

or to be made by the proponent, by the debtor, or by a

person issuing securities or acquiring property under the

plan . . . In connection with the plan and incident to the

case, has been approved by, or is subject to the approval of,

the court as reasonable.” § 1129(a)(4) (emphasis added). If

“under the plan” means “authorized by” an already

confirmed plan, then there could never be a payment made

under a plan prior to confirmation. Such a reading would

read out the past tense “made” in the above phrase.

Instead, a more consistent reading of the code suggests

that a purchase or sale “under the plan” does not require

prior confirmation of the plan. As the majority notes, “in

accordance with” is an acceptable definition of “under” and

“a sale of real estate could be said to be ‘in accordance

with’ with a plan . . . that is confirmed [after the sale

occurs].” Majority, supra at III.B. 

The majority looks to the repeated use of “under”

§ 1146(c) and concludes that “authorized by” makes the

most sense in each instance. Typically words should have

the same meaning as they are used throughout the code.

See Sorenson v. Sec. of the Treasury, 475 U.S. 851, 860

(1986). However, “under” is used in nearly two hundred

different sections of the bankruptcy code. When “under”

can be a preposition, adverb, adjective, noun, or verb, see

Webster’s New International Dictionary of the English

Language, Unabridged, (2d ed. 1934), and it is used so

frequently, this may be a case where this canon of statutory

interpretation is of little value. See e.g., Kapral v. United

States, 166 F.3d 565, 575 n.7 (3d Cir. 1999) (“Of course,

canons of construction are not absolute and must yield

when other indicia of congressional intent suggest a

different result.”). Again, the key is that “under” cannot be

25
read in isolation, it must be read as part of the phrase

“under a plan.”

1

Only by reading “under” as “authorized by” does the

statute place a temporal restriction on the transfers.

However, when Congress wanted to apply a temporal

restriction in the code, it knew how to do so, and did do

expressly. See, e.g., § 1104(a) (“At any time after the

commencement of the case but before confirmation of a

plan . . .”); § 1105 (“At any time before confirmation of a

plan . . .”); § 1121(b) (“. . . only the debtor may file a plan

until after 120 days after the date of the order for relief ”).

Nonetheless, if the statute is unambiguous, it

unambiguously does not place a temporal restriction on

qualifying transfers. A definition of “under” that does not

unduly limit the qualifying transfers is supported by the

statutory intent, consistent reading of the code, and

bankruptcy reality. 

B. Reading tax exemptions narrowly vs. the remedial

purpose of the bankruptcy code

The Appellants encourage us to apply the canon of

interpretation to read tax exemptions narrowly. See e.g., BA

Props. v. Gov’t of the United States V.I., 299 F.3d 207, 215

(3d Cir. 2002). But we are not to abrogate the purpose of

the exemption through too narrow an application. See id.

(“A reflexive adherence to this canon without careful

examination of the exemption in question may result in an

abdication of the judiciary’s responsibility to interpret

1. If “under” must be read in isolation to have the same meaning

throughout § 1146(c), “in accordance with” could be used in each

instance in § 1146(c). As discussed above, the first instance of “under” in

“under a plan” can logically be read as “in accordance with a plan.”

Reading the third instance of “under” as “taxed in accordance with any

law imposing a stamp tax or similar tax,” is no less correct than “taxed

pursuant to the authority of any such law.” Finally, “Under” in

“confirmed under section 1129” makes the most sense when read as

“confirmed in accordance with section 1129.” Section 1129 sets out the

requirements that must be met for a plan to be confirmed. 11 U.S.C.

§ 1129(a). Section 1129 is not a grant of authority, it is a statement of

requirements that must be met for confirmation. As noted above, it even

uses the phrase “under a plan” when referring to both pre- and postconfirmation payments. 

26
statutes in ways that are faithful to legislative intent.”).

“[A]s a general rule grants of tax exemptions are given a

strict interpretation against the assertions of the taxpayer

and in favor of the taxing power but it is equally true that

such interpretation may not be so literal and narrow as to

defeat the exemption’s purpose. Moreover, . . . a remedial

statute such as the bankruptcy law should be liberally

construed.” In re CCA Partnership, 70 B.R. 696, 698

(Bankr. D. Del 1987) (citing 3 Sutherland, Statutory

Construction, §§ 60.01, 60.02, 66.09 (4th ed. 1974)). Section

§ 1146(c), which applies only to Chapter 11 cases, was

clearly intended to provide relief to debtors when they were

compelled to sell assets under the plan. Our reading of the

statute should comport with this intent.2

In its opinion, the Bankruptcy Court described at length

the reality of plan proposal and confirmation. The

Bankruptcy Court lists four basic scenarios leading to plan

confirmation. The debtor may (A) transfer all of its

2. Little has been written concerning the legislative history of § 1146(c).

The best description comes from In re Permar, 79 B.R. 530, 533

(E.D.N.Y. 1987): 

The legislative history to section 1146(c) is scant. The Senate and

House Reports to the Bankruptcy Code state “subsection [c] is

derived from section 267 of the Bankruptcy Act.” S.R. No. 989, 95th

Cong., 2d Sess. 132 (1978); H.R. No. 595, 95th Cong., 1st Sess. 421

(1977). Section 267 had similar “under the plan” language as

section 1146(c). The direct predecessor of section 267, section

77B(f), however, had a different nexus: “to make effective any plan.”

Several parallel tax statutes to section 267 had the same “to make

effective any plan” language. See 6A Collier on Bankruptcy Para.

15.08 at 837-40 (14th ed. 1977). Collier concluded “the provisions

of [section] 267 and those of the Internal Revenue Code with its

amendments make it clear that the exemption conferred relates only

to transactions otherwise taxable which serve to execute or make

effective a plan confirmed under Chapter X.” 6A Collier on

Bankruptcy Para. 15.08 at 840 (14th ed. 1977). 

Id. As the Second Circuit in Jacoby Bender noted, “Congress’s apparent

purpose in enacting section 1146 was to facilitate reorganizations

through giving tax relief.” In re Jacoby-Bender, 758 F.2d 840, 841 (2d

Cir. 1985). We should read 1146(c) to facilitate reorganization, not

impede reorganization. 

27
properties via a going concern sale authorized by a

confirmed plan—a liquidating plan. In the alternative, the

debtor may (B) transfer property prior to confirmation of the

plan. “This typically occurs because the debtor has no

reasonable prospects for reorganization, is in a severe

negative cash flow situation and cannot await the plan

confirmation process if the estate is to realize going concern

value in the disposition of the business.” In re Hechinger,

254 B.R. 306, 320 (Bankr. D. Del. 2000). This would still

result in a liquidating plan. Instead of a liquidating plan,

the debtor may restructure. Here, the debtor may (C)

transfer some of its business/property via a restructuring

or downsizing, as authorized by a confirmed plan. Again, in

the alternative, the debtor may (D) transfer some property

“done as a part of a formulated business plan to emerge

from Chapter 11 with the transfer taking place prior to the

filing of, or confirmation of, a plan. The pre-plan disposition

may be prompted by the need to obtain going concern value

for underperforming parts of the business and/or the need

to position the debtor in its new business mode in order to

formulate and negotiate a plan of reorganization.” Id. 

The Bankruptcy Court noted that many Chapter 11 cases

run for more than a year, and may require dispositions of

property throughout the negotiation and filing of the plan.

“[A] very distinct minority of cases fall into scenarios” (A)

and (C), where transfers occur post confirmation. Id. at

320. Under the majority’s reading of § 1146(c), very few

transfers will qualify for the exemption. I agree with the

statement of the Bankruptcy Court: “I find it difficult to

believe that Congress intended such a limited application of

the exemption, particularly given the absence of a rational

basis for preferring some plan scenarios over others.” Id.

“Given the reality of business and bankruptcy practice,

adopting a rule that requires all bankruptcy transfers to

occur post-confirmation would seem to frustrate section

1146(c)’s stated purpose of facilitating reorganization in a

large number of cases.” In re: GST Telecom, Inc, 2002 U.S.

Dist. LEXIS 4662, *6 (D. Del. 2002). 

C. Essential to or an important component of the plan

process

The majority frames the Trust’s reading of “made under

a plan confirmed” as “necessary for the confirmation of a

28
plan that is eventually confirmed,” then proceeds to

undercut the Trust’s argument by again focusing on the

meaning of “under” in isolation. Majority supra at III.D. To

begin, there can be no question that § 1146(c) only applies

if there is eventually a confirmed plan, we can agree that

the plain language of the statute requires this much. The

issue therefore becomes whether the District Court and

Bankruptcy Court’s reading of the statute to apply only

where the transfer is “essential to or an important

component of the plan process” is improper. Whatever the

meaning of “under” in § 1146(c), there clearly must be a

nexus between the plan confirmed and the transfer for the

exemption to apply. 

The Appellants here attempt to undercut the Bankruptcy

and District Court’s reliance on In re Jacoby-Bender, 758

F.2d 840 (2d Cir. 1985). The facts of Jacoby-Bender are

distinguishable, in that the sales there came after

confirmation, but nothing in Jacoby-Bender indicates that

its holding was predicated on the timing of the

transactions. Lower courts purporting to follow JacobyBender have consistently applied its reasoning to preconfirmation transfers. See e.g., New York City v. Baldwin

League of Indep. Schs., 110 B.R. 125, 127 (S.D.N.Y. 1990);

In re Smoss Enters. Corp., 54 B.R. 950, 951 (E.D.N.Y.

1985); cf. In re 995 Fifth Ave. Assoc., L.P., 127 B.R. 533,

540 (S.D.N.Y. 1991) (describing Jacoby-Bender as

addressing the meaning of “under a plan”). In JacobyBender, the debtor sought and received approval for the

sale under § 363(b), just as the debtor in this case did. 758

F.2d at 841. Even though the sale was authorized by

§ 363(b), the Court of Appeals for the Second Circuit still

found that the transaction was “under” the plan confirmed

because it was necessary for the consummation of the plan.

Id. The District Court here found that “[t]he transfers at

issue here are clearly necessary to the plan because the

proceeds of those transfers are to be used for funding

Hechinger’s plan.” 276 B.R. 43, 48 (D. Del. 2002). If

“under” is not read to impose a temporal restriction on the

qualifying transfers, there is no inconsistency with these

decisions. I would follow the logic of Jacoby-Bender and

affirm the District Court’s decision. These transfers were

necessary to the plan, which was later confirmed, and

29
therefore qualify for the exemption as being “under a plan

confirmed.” Congress seeks to encourage plan confirmation

through § 1146(c). If the exemption is limited to only those

transactions occurring post confirmation, it is for Congress

to make that determination. 

III. Eleventh Amendment

Were my colleagues to agree with my analysis, we would

need to reach the Eleventh Amendment issue. Although I

agree with the analysis of the Bankruptcy Court and

District Court and would affirm their decision, I limit my

analysis in this dissent to issues reached in the majority’s

opinion.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

30