Source: http://openjurist.org/101/f3d/272/lehal-realty-associates-lebovits-v-f-scheffel
Timestamp: 2014-09-18 00:10:19
Document Index: 317423110

Matched Legal Cases: ['Art. 31', '§ 1441', '§ 1146', '§ 1146', '§ 1146', '§ 1146', '§ 1146', '§ 505']

101 F3d 272 Lehal Realty Associates Lebovits v. F Scheffel | OpenJurist
101 F. 3d 272 - Lehal Realty Associates Lebovits v. F Scheffel	Home101 f3d 272 lehal realty associates lebovits v. f scheffel
101 F3d 272 Lehal Realty Associates Lebovits v. F Scheffel 101 F.3d 272
65 USLW 2438, 29 Bankr.Ct.Dec. 1326,Bankr. L. Rep. P 77,185
In re LEHAL REALTY ASSOCIATES, Debtor.George LEBOVITS, a principal and equity holder of LehalRealty Associates, Debtor-Appellant,v.John F. SCHEFFEL, as Trustee of Lehal Realty Associates,Trustee-Appellee.
No. 100, Docket 96-5007.
Argued Sept. 5, 1996.Decided Nov. 27, 1996.
Harvey S. Barr, Spring Valley, NY (Barr & Rosenbaum, LLP, Elizabeth A. Haas, on the brief), for Debtor-Appellant.
Richard L. Magro, White Plains, NY (Voute, Lohrfink, Magro and Collins, of counsel), for Trustee-Appellee.
George Lebovits, a 75% general partner in debtor Lehal Realty Associates (Lehal), appeals from an order of the United States District Court for the Southern District of New York, Charles L. Brieant, J. The order enjoined the prosecution of a pending action brought by Lebovits and his partner in a New York State court against appellee John F. Scheffel, Esq., the debtor's trustee in bankruptcy, for breach of fiduciary duty. The action had been brought without the permission of the bankruptcy court. The principal issue before us is whether Judge Brieant erred in granting the injunction. We hold that, on the record before us, he did not. For reasons set forth below, we affirm the order of the district court.
In February 1989, an involuntary Chapter 11 petition in bankruptcy was filed against Lehal in the Southern District. Appellee Scheffel (the Trustee) was appointed trustee of the debtor in August 1989. Thereafter, Bankruptcy Judge Howard J. Schwartzberg approved a plan of reorganization that contemplated the liquidation of the debtor's only significant asset, a parcel of real estate located in Rockland County, New York. The property was sold at public auction for $7,600,000.
New York State imposes a tax of 10% (the Gains Tax) on profits from the sale of real property, calculated by subtracting from the sale price an amount equal to the price that the seller paid to acquire the property plus the value of certain capital improvements. N.Y. Tax Law Art. 31B, § 1441 et seq. (McKinney 1987). In order to record a deed transferring property selling for more than a specified minimum amount (concededly exceeded here), the law requires the transferor either to pay the Gains Tax or to obtain a waiver from the New York State Department of Taxation and Finance (the State).
The State computed the gain subject to tax on the proposed sale to be $6,463,288.50, with a total tax due of $646,328.85. The Trustee had apparently unsuccessfully taken the position with the State that some five million dollars in capital improvements should have been included in the debtor's cost basis in calculating the amount of Gains Tax due (the basis argument). Pursuant to authority granted by the bankruptcy court and in order to consummate the sale of the real property, the Trustee paid the tax in February 1990. However, he did so under protest, reserving his right to commence proceedings to recover the funds.
In July 1990, in an unrelated case, Bankruptcy Judge Tina L. Brozman of the Southern District held that a debtor's sale of real property pursuant to an approved plan of reorganization was exempt from the Gains Tax as a "stamp tax or similar tax" under § 1146(c) of the Bankruptcy Code. 11 U.S.C. § 1146(c).1 In re 995 Fifth Ave. Assoc., L.P., 116 B.R. 384 (Bankr.S.D.N.Y.1990).
Relying on that decision, the Trustee filed with the State in November 1990 a claim for refund of the Gains Tax he had paid. The claim asserted that, pursuant to § 1146(c), the transfer was exempt from the Gains Tax. It does not appear that the Trustee also raised the basis argument.
The State rejected the claim in a letter dated May 13, 1991. The State disagreed with the Trustee's interpretation of § 1146(c), and relied on an earlier bankruptcy court decision for the proposition that the Gains Tax was not a stamp tax or similar tax under § 1146(c). In re Jacoby-Bender, Inc., 40 B.R. 10 (Bankr.E.D.N.Y.1984), aff'd. 758 F.2d 840 (2d Cir.1985). The State's letter stated:
In accordance with Section 1445.2 of the Tax Law, this determination shall be final and irrevocable unless claimant within ninety (90) days files with [sic] a request for Conciliation Conference with the Bureau of Conciliation and Mediation Services or a Petition for Tax Appeals Hearing with the Division of Tax Appeals. The enclosed Form TA-9.1 explains this procedure.
The Trustee did not follow either course suggested in the letter. Instead, in June 1991 he commenced an adversary proceeding in the bankruptcy court against the State to recover the Gains Tax already paid.
The Trustee's complaint in the adversary proceeding contained two causes of action: the first raised the stamp tax exemption argument, and the second the basis argument. In October 1991, Bankruptcy Judge Schwartzberg concluded that he had the authority to determine the amount or legality of the Gains Tax pursuant to 11 U.S.C. § 505, but had no authority to compel the State to refund any portion of the tax because the State had not waived its Eleventh Amendment right of sovereign immunity. In re Lehal Realty Associates, 133 B.R. 9 (Bankr.S.D.N.Y.1991). On this view, the bankruptcy judge did not reach the merits of the Trustee's basis argument.
In December 1991, the Trustee filed an administrative tax appeal with the State from its denial in May 1991 of his refund claim. The Trustee and the State thereafter stipulated to adjourn the administrative appeal until this court decided an already argued appeal growing out of Bankruptcy Judge Brozman's decision in 995 Fifth Avenue.2 Our opinion in that case was issued in April 1992. We held that the Gains Tax is not a stamp tax or