Source: https://supreme.justia.com/cases/federal/us/554/33/
Timestamp: 2019-11-14 08:34:39
Document Index: 591558512

Matched Legal Cases: ['§1146', '§1146', '§1146', '§1146', '§1146', '§1146', '§1146', '§1146', '§1129', '§1146', '§1146', '§1146', '§1146', '§1146', '§1101', '§363', '§1146', '§365', '§1146', '§365', '§365', '§365', '§365', '§1146', '§1146', '§1146', '§1146', '§719', '§363', '§1129', '§365', '§1123', '§365', '§365', '§365', '§1123']

Florida Dept. of Revenue v. Piccadilly Cafeterias, Inc. :: 554 U.S. 33 (2008) :: Justia US Supreme Court Center
Justia › US Law › US Case Law › US Supreme Court › Volume 554 › Florida Dept. of Revenue v. Piccadilly Cafeterias, Inc.
FLORIDA DEPARTMENT OF REVENUE v. PICCADILLY CAFETERIAS, INC.
No. 07–312. Argued March 26, 2008—Decided June 16, 2008
After respondent (Piccadilly) declared bankruptcy under Chapter 11, but before its plan was submitted to the Bankruptcy Court, that court authorized Piccadilly to sell its assets, approved its settlement agreement with creditors, and granted it an exemption under 11 U. S. C. §1146(a), which provides a tax-stamp exemption for any asset transfer “under a plan confirmed under section 1129.” After the sale, Piccadilly filed its Chapter 11 plan, but before the plan could be confirmed, petitioner Florida Department of Revenue (Florida) objected, arguing that the stamp taxes it had assessed on certain of the transferred assets fell outside §1146(a)’s exemption because the transfer had not been under a confirmed plan. The court granted Piccadilly summary judgment. The Eleventh Circuit affirmed, holding that §1146(a)’s exemption applies to preconfirmation transfers necessary to the consummation of a confirmed Chapter 11 plan, provided there is some nexus between such transfers and the plan; that §1146(a)’s text was ambiguous and should be interpreted consistent with the principle that a remedial statute should be construed liberally; and that this interpretation better accounted for the practicalities of Chapter 11 cases because a debtor may need to transfer assets to induce relevant parties to endorse a proposed plan’s confirmation.
Held: Because §1146(a) affords a stamp-tax exemption only to transfers made pursuant to a Chapter 11 plan that has been confirmed, Piccadilly may not rely on that provision to avoid Florida’s stamp taxes. The most natural reading of §1146(a)’s text, the provision’s placement within the Bankruptcy Code, and applicable canons of statutory construction lead to this conclusion. Pp. 4–19.
(a) Florida’s reading of §1146(a) is the most natural. Contending that the text unambiguously limits stamp-tax exemptions to postconfirmation transfers made under the authority of a confirmed plan, Florida argues that “plan confirmed” denotes a plan confirmed in the past, and that “under” should be read to mean “with the authorization of” or “inferior or subordinate” to its referent, here the confirmed plan, see Ardestani v. INS, 502 U. S. 129, 135. Piccadilly counters that the provision does not unambiguously impose a temporal requirement, contending that had Congress intended “plan confirmed” to mean “confirmed plan,” it would have used that language, and that “under” is as easily read to mean “in accordance with.” While both sides present credible interpretations, Florida’s is the better one. Congress could have used more precise language and thus removed all ambiguity, but the two readings are not equally plausible. Piccadilly’s interpretation places greater strain on the statutory text than Florida’s simpler construction. And Piccadilly’s emphasis on the distinction between “plan confirmed” and “confirmed plan” is unavailing because §1146(a) specifies not only that a transfer be “under a plan,” but also that the plan be confirmed pursuant to §1129. Ultimately this Court need not decide whether §1146(a) is unambiguous on its face, for, based on the parties’ other arguments, any ambiguity must be resolved in Florida’s favor. Pp. 4–7.
(b) Even on the assumption that §1146(a)’s text is ambiguous, reading it in context with other relevant Code provisions reveals nothing justifying Piccadilly’s claims that had Congress intended §1146(a) to apply exclusively to postconfirmation transfers, it would have made its intent plain with an express temporal limitation, and that “under” should be construed broadly to mean in “in accordance with.” If statutory context suggests anything, it is that §1146(a) is inapplicable to preconfirmation transfers. The provision’s placement in a subchapter entitled “POSTCONFIRMATION MATTERS” undermines Piccadilly’s view that it extends to preconfirmation transfers. Piccadilly’s textual and contextual arguments, even if fully accepted, would establish at most that the statutory language is ambiguous, not that the purported ambiguity should be resolved in Piccadilly’s favor. Pp. 7–13.
(c) The federalism cannon articulated in California State Bd. of Equalization v. Sierra Summit, Inc., 490 U. S. 844, 851–852—that courts should “proceed carefully when asked to recognize an exemption from state taxation that Congress has not clearly expressed ”—obliges the Court to construe §1146(a)’s exemption narrowly. Piccadilly’s interpretation would require the Court to do exactly what the canon counsels against: recognize an exemption that Congress has not clearly expressed, namely, an exemption for preconfirmation transfers. The various substantive canons on which Piccadilly relies for its interpretation—most notably, that a remedial statute should be construed liberally—are inapposite in this case. Pp. 13–19.
Thomas, J., delivered the opinion of the Court, in which Roberts, C. J., and Scalia, Kennedy, Souter, Ginsburg, and Alito, JJ., joined. Breyer, J., filed a dissenting opinion, in which Stevens, J., joined.
FLORIDA DEPARTMENT OF REVENUE, PETITIONER v. PICCADILLY CAFETERIAS, INC.
Piccadilly was founded in 1944 and was one of the Nation’s most successful cafeteria chains until it began experiencing financial difficulties in the last decade. On October 29, 2003, Piccadilly declared bankruptcy under Chapter 11 of the Bankruptcy Code, §1101 et seq. (2000 ed. and Supp. V), and requested court authorization to sell substantially all its assets outside the ordinary course of business pursuant to §363(b)(1) (2000 ed., Supp. V). Piccadilly prepared to sell its assets as a going concern and sought an exemption from any stamp taxes on the eventual transfer under §1146(a) of the Code.[Footnote 1] The Bankruptcy Court conducted an auction in which the winning bidder agreed to purchase Piccadilly’s assets for $80 million.
Nor does anything in §365(g)(1) recommend Piccadilly’s reading of §1146(a). Section 365(g) generally allows a trustee to reject “an executory contract or unexpired lease of the debtor,” i.e., to reject a contract that is unfavorable to the estate, subject to court approval. As the text makes clear, such approval may occur either under “this section,” §365(g)—i.e., “at any time before the confirmation of a plan,” §365(d)(2)—or “under a plan confirmed under chapter 9, 11, 12, or 13,” §365(g)(1). Piccadilly relies heavily on Bildisco, supra, in which this Court held that §365 permits a debtor-in-possession to reject a collective-bargaining agreement like any other executory contract, and that doing so is not an unfair labor practice under the National Labor Relations Act. In reaching this conclusion, the Court observed that “a debtor-in-possession has until a reorganization plan is confirmed to decide whether to accept or reject an executory contract.” 465 U. S., at 529 (emphasis added).
The most natural reading of §1146(a)’s text, the provision’s placement within the Code, and applicable substantive canons all lead to the same conclusion: Section 1146(a) affords a stamp-tax exemption only to transfers made pursuant to a Chapter 11 plan that has been confirmed. Because Piccadilly transferred its assets before its Chapter 11 plan was confirmed by the Bankruptcy Court, it may not rely on §1146(a) to avoid Florida’s stamp taxes. Accordingly, we reverse the judgment below and remand the case for further proceedings consistent with this opinion.
When litigation commenced in the lower courts, the stamp-tax exemption was contained in §1146(c) (2000 ed.). In 2005, Congress repealed subsections (a) and (b), and the stamp-tax exemption was recodified as §1146(a). See Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, §719(b)(3), 119 Stat. 133. For simplicity, we will cite the provision as it is currently codified.
Chapter 11 bankruptcy proceedings ordinarily culminate in the confirmation of a reorganization plan. But in some cases, as here, a debtor sells all or substantially all its assets under §363(b)(1) (2000 ed., Supp. V) before seeking or receiving plan confirmation. In this scenario, the debtor typically submits for confirmation a plan of liquidation (rather than a traditional plan of reorganization) providing for the distribution of the proceeds resulting from the sale. Here, Piccadilly filed a Chapter 11 liquidation plan after selling substantially all its assets as a going concern. Although the central purpose of Chapter 11 is to facilitate reorganizations rather than liquidations (covered generally by Chapter 7), Chapter 11 expressly contemplates liquidations. See §1129(a)(11) (2000 ed.) (“Confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan”).
Also meritless is Piccadilly’s argument that “under” in the phrase “under a plan confirmed under chapter . . . 11” in §365(g)(1) cannot be read to mean “subject to” because §1123(b)(2), in Piccadilly’s words, “circles back to section 365.” Brief for Respondent 39. Section 1123(b)(2) authorizes a plan to provide for the assumption, rejection, or assignment of an executory contract or unexpired lease, but requires that the plan do so in a manner consistent with the various requirements set forth throughout §365. By contrast, the phrase “under this section” in §365(g)(1) serves as a reference to §365(d)(2), which permits preconfirmation assumptions and rejections pursuant to a court order (and not, as in §1123(b)(2), pursuant to a confirmed plan).
Hence we must ask whether the time of transfer matters. Do the statutory words “under a plan confirmed under section 1129 of this title” apply only where a transfer takes place “under a plan” that at the time of the transfer already has been “confirmed under section 1129 of this title”? Or, do they also apply where a transfer takes place “under a plan” that subsequently is “confirmed under section 1129 of this title”? The Court concludes that the statutory phrase applies only where a transfer takes place “under a plan” that at the time of transfer already has been “confirmed under section 1129 of this title.” In my view, however, the statutory phrase applies “under a plan” that at the time of transfer either already has been or subsequently is “confirmed.” In a word, the majority believes that the time (pre- or post-transfer) at which the bankruptcy judge confirms the reorganization plan matters. I believe that it does not. (And construing the provision to refer to a plan that simply “is” confirmed would require us to read fewer words into the statute than the Court’s construction, which reads the provision to refer only to a plan “that has been” confirmed, ante, at 19.)
Moreover, one major reason why a transfer may take place before rather than after a plan is confirmed is that the preconfirmation bankruptcy process takes time. As the Administrative Office of the United States Courts recently reported, “[a] Chapter 11 case may continue for many years.” Bankruptcy Basics (Apr. 2006), online at http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/ chapter11.html (as visited June 13, 2008, and available in Clerk of Court’s case file). Accord, In re Hechinger Inv. Co. of Del., 254 B. R. 306, 320 (Bkrtcy. Ct. Del. 2000) (noting it may run “a year or two”). And a firm (or its assets) may have more value (say, as a going concern) where sale takes place quickly. As the District Court in this case acknowledged, “there are times when it is more advantageous for the debtor to begin to sell as many assets as quickly as possible in order to insure that the assets do not lose value.” In re Piccadilly Cafeterias, Inc., 379 B. R. 215, 224 (SD Fla. 2006) (internal quotations marks and alteration omitted). See, e.g., In re Webster Classic Auctions, Inc., 318 B. R. 216, 219 (Bkrtcy. Ct. MD Fla. 2004) (recognizing “the inestimable benefit to a Chapter 11 estate to sell a piece of property at the most opportune time—whether pre- or postconfirmation—as opposed to requiring all concerned to wait for a postconfirmation sale in order to receive the tax relief Congress obviously intended”); In re Medical Software Solutions, 286 B. R. 431, 441 (Bkrtcy. Ct. Utah 2002) (approving preconfirmation sale of debtor’s assets recognizing that the assets’ “value is reducing rapidly” and there was only a narrow window for a viable sale of the assets). Thus, an immediate sale can often make more revenue available to creditors or for reorganization of the remaining assets. Stamp taxes on related transfers simply reduce the funds available for any such legitimate purposes. And insofar as the Court’s interpretation of the statute reduces the funds made available, that interpretation inhibits the statute’s efforts to achieve its basic objectives.
Oral Argument - March 26, 2008
Opinion Announcement - June 16, 2008
554 U.S. 33