Court Opinion

ID: 2966739
Source: CourtListenerOpinion
Date Created: 2015-09-22 01:03:55.468139+00
Date Added: 2024-06-11T11:21:39.217231
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

STATE OF MARYLAND; MONTGOMERY
COUNTY; BALTIMORE COUNTY,
Plaintiffs-Appellants,

v.

ANTONELLI CREDITORS' LIQUIDATING
                                                                   No. 96-1111
TRUST; REALCO-RITCHIE CENTER
LLC; BK BELMONT LLC;
CAMBERWELL PROPERTIES LLC,
Defendants-Appellees,

UNITED STATES OF AMERICA,
Intervenor-Appellee.

Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
J. Frederick Motz, Chief District Judge.
(CA-95-1713-JFM)

Argued: April 9, 1997

Decided: August 26, 1997

Before NIEMEYER, LUTTIG, and MICHAEL, Circuit Judges.

_________________________________________________________________

Affirmed by published opinion. Judge Niemeyer wrote the opinion,
in which Luttig and Judge Michael joined.

_________________________________________________________________

COUNSEL

ARGUED: Julia Melville Freit, Assistant Attorney General, Balti-
more, Maryland, for Appellants. Daniel Martin Lewis, ARNOLD &
PORTER, Washington, D.C., for Appellees. Michael Eugene Robin-
son, Civil Division, UNITED STATES DEPARTMENT OF JUS-
TICE, Washington, D.C., for Intervenor. ON BRIEF: J. Joseph
Curran, Jr., Attorney General of Maryland, Baltimore, Maryland;
Charles W. Thompson, Jr., Montgomery County Attorney, David J.
Frankel, Associate County Attorney, Rockville, Maryland; Virginia
W. Barnhart, Baltimore County Attorney, Towson, Maryland, for
Appellants. Andrew T. Karron, Richard M. Lucas, ARNOLD & POR-
TER, Washington, D.C.; John A. Roberts, VENABLE, BAETJER &
HOWARD, L.L.P., Baltimore, Maryland; Douglas Bregman, BREG-
MAN, BERBERT & SCHWARTZ, Bethesda, Maryland; Michael
Barrett, John Millian, GIBSON, DUNN & CRUTCHER, Washington,
D.C., for Appellees. Frank W. Hunger, Assistant Attorney General,
Lynne A. Battaglia, United States Attorney, Mark B. Stern, Civil
Division, UNITED STATES DEPARTMENT OF JUSTICE, Wash-
ington, D.C., for Intervenor.

_________________________________________________________________

OPINION

NIEMEYER, Circuit Judge:

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 pur-
chasers of those parcels. They also sued for transfer and recordation
taxes in connection with other unspecified transfers by the Liquidat-
ing 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, pursu-
ant to the Bankruptcy Code, 11 U.S.C. § 1146(c) (exempting plan
transfers from state "stamp tax or similar tax"), the transfers in ques-
tion 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

                     2
bankruptcy court's confirmation order and may not challenge it col-
laterally in a subsequent court proceeding. Because the reasonable-
ness 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 dis-
trict court, we affirm.

I

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, consist-
ing 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 reorganiza-
tion.

The creditors' committee and the Antonellis negotiated for months
to develop a plan of reorganization, working through four distinct ver-
sions 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

                    3
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 . . . reason-
ably necessary to, and consistent with accomplishment of, [trust] pur-
poses," which were:

          liquidating the [trust property] as rapidly as market condi-
          tions allow, consistent with the objective of maximizing
          value and taking into consideration tax effects and business
          impediments, distributing the proceeds therefrom in accor-
          dance with the terms of this Agreement and the Plan, accel-
          erating 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. Pro-
          ceeds from the liquidation of [trust property] shall be dis-
          tributed by the Plan Committee in accordance with the terms
          of this Agreement.

While the plan thus created the Liquidating Trust to take title to prop-
erty 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) (exempting plan transfers from
state "stamp tax or similar tax"), 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 pur-
chasers. 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

                     4
          liable for any stamp tax or similar tax on the issuance, trans-
          fer 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 Mont-
gomery 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 trans-
fers 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 bank-
ruptcy court held a confirmation hearing. None of the Taxing Author-
ities 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 prop-
erty to the Liquidating Trust, which began selling the property of the
bankruptcy estate. In November 1993, it sold a residence in Mont-
gomery County known as "Camberwell Down"; in June 1994 it sold
a parcel of land adjacent to the Richie Pike Shopping Center in Mont-
gomery 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 exemp-
tion from recordation, transfer, and stamp taxes. At the time of recor-
dation, none of the Taxing Authorities sought to impose a transfer or
recordation tax.

                    5
Almost a year later, however, in May 1995, the Taxing Authorities
filed this action against the Liquidating Trust as well as the three pur-
chasers of the properties located in Montgomery County and Balti-
more 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 pro-
visions and failed to take action to challenge them at the time, thereby
precluding them from collaterally attacking the bankruptcy court's
order confirming the plan. The district court relied in large part on the
fact that the State of Maryland and Montgomery County had been
named defendants in the declaratory judgment proceeding that raised
the tax issue. Because Baltimore County was not named in that adver-
sary action, the district court concluded that notice to it was more
questionable. Accordingly, the court decided to rule on the merits,
holding that "both the literal terms of [11 U.S.C.] § 1146(c) and the
interests of the public in sound and efficient administration of bank-
ruptcy estates support the application of § 1146(c) to transfers made
by the Liquidating Trust." 191 B.R. at 646. This appeal followed.

II

The Taxing Authorities contend that they are not bound by the
bankruptcy court's order confirming the plan of reorganization
because "[t]he basic notion of finality underlying res judicata and pre-
clusion [requires] that a person receive[ ] adequate due process
notice." They claim that they did not receive sufficient notice to alert
them to object to the plan because they were not yet creditors for
transfer and recordation taxes. Those taxes would become due only
when deeds memorializing transactions from the Liquidating Trust to
the third-party purchasers were recorded, long after the plan was
approved. Since the plan involved only future transfers, the Taxing
Authorities claim they were not in a position to act.

As an initial matter, we note that to the extent the order confirming
the Plan incorporates 11 U.S.C. § 1146(c) and goes no further, the

                     6
Taxing Authorities are bound not by "res judicata and preclusion" but
by the statutory provision itself. That Bankruptcy Code provision,
which exempts plan transfers from every state "stamp tax or similar
tax," is a congressional enactment that binds the state and its counties
whether they have notice or not. They are so bound neither solely nor
primarily because the bankruptcy court entered an order incorporating
the tax exemption provision, but because the federal government has
power under the Bankruptcy Clause of the Constitution, art. I, § 8, cl.
4, to enact such a provision, and any bankruptcy provision enacted
within constitutional authority applies directly to a bankruptcy estate
and takes precedence over conflicting state provisions by reason of
the Supremacy Clause, U.S. Const. art. VI, § 2. The provision for tax
exemption at issue here operates against the states in a fashion similar
to, for example, the automatic stay provision, 11 U.S.C. § 362. The
force of such legislative enactments is not derived from a court order
or prior adjudication, but from the legislative enactments themselves.
Thus, to the extent that the bankruptcy court's order reflects an accu-
rate interpretation of 11 U.S.C. § 1146(c), the order is mere surplus-
age and imposed no new burden on the Taxing Authorities.

III

While the Taxing Authorities may be ready to acknowledge the
precedence of federal bankruptcy law over state taxing provisions,
they argue that the bankruptcy court in its confirmation order inter-
preted 11 U.S.C. § 1146(c) too expansively, applying it to circum-
stances not covered by the Bankruptcy Code's exempting provision.

The bankruptcy court's interpretation of 11 U.S.C.§ 1146 is mani-
fested by its approval of paragraph 9.5 of the liquidation plan provid-
ing that "neither the Bankruptcy Estate . . . 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 . . . transfer . . . of prop-
erty, or the making or delivery of an instrument of transfer under the
Plan, . . . by or to . . . the Liquidating Trust." The bankruptcy court
thus applied § 1146(c)'s exemption to the real property transfers that
were, under the plan, to occur first from the debtors to the Liquidating
Trust and then from the Liquidating Trust to third-party purchasers.
The Taxing Authorities acknowledge that the first level of transfers
is exempted from taxation by 11 U.S.C. § 1146(c); they argue, how-

                     7
ever, that the second level is not. They contend that their position is
supported by our decision in Mensh v. Eastern Stainless Corp. (In re
Eastmet Corp.), 907 F.2d 1487 (4th Cir. 1990) (holding that § 1146(c)
exemption does not apply to the recordation of mortgages taken out
by third-party purchasers to purchase property from a bankruptcy
estate).

The Taxing Authorities' arguments fail to recognize the larger
structure of the plan of reorganization, which specifically required
both levels of transfer to take place in order to liquidate the debtor's
assets and distribute the proceeds to the creditors. The interposition
of the Liquidating Trust between the debtors and the ultimate pur-
chasers was simply a procedural mechanism to facilitate the plan's
overall purpose of orderly and efficient liquidation. The trust was cre-
ated solely to mediate the transfers that were essential to the plan.

Regardless of our opinion as to the possible merits of the argu-
ments now raised by the Taxing Authorities, however, we conclude
that they are procedurally barred from now making them. They had
the knowledge, choice, and opportunity to object to the bankruptcy
court's order or to appeal it to the district court, and they pursued nei-
ther course. It is noteworthy that when the State of Maryland and
Montgomery County were sued in the declaratory judgment action
raising this very issue, only these two entities among all of those
named as defendants chose not to obtain a court ruling on the issue.
Rather, they moved to dismiss the action because no plan had yet
been approved. But when the plan was approved, they elected neither
to object nor to appeal. While they certainly were not required to
challenge the plan, they cannot later seek to challenge it collaterally.
As we stated recently in Spartan Mills v. Bank of America Illinois,
112 F.3d 1251 (4th Cir. 1997):

           The judicial system's need for order and finality requires
          that orders of [bankruptcy] courts having jurisdiction to
          enter them be obeyed until reversed, even if proper grounds
          exist to challenge them. A challenge for error may be
          directed to the ordering court or a higher court, as rules pro-
          vide, but it may not be made collaterally unless it is based
          on the original court's lack of jurisdiction.

                     8
Id. at 1255; see also Celotex Corp. v. Edwards, 115 S. Ct. 1493, 1498
(1995); 11 U.S.C. § 1141(a) ("[T]he provisions of a confirmed plan
bind the debtor . . . and any creditor" whether or not the creditor
accepted the plan or is adversely affected by it).*

The Taxing Authorities argue that notice of the plan was given to
them as creditors for unrelated taxes and was not effective against
them as potential creditors for transfer and recordation taxes. While
the Taxing Authorities may not have received notice specifically
because they were potential creditors in respect to transfer and recor-
dation taxes, since none were yet due, they nevertheless had actual
notice of the plan's provision exempting such transfers. The binding
effect of bankruptcy orders does not depend on whether the creditors
receive notice because of a particular proof of claim they filed, but on
whether they receive notice "reasonably calculated under all the cir-
cumstances, to apprise [them] of the pendency of the action and
afford them an opportunity to present their objections." Mullane v.
Central Hanover Bank and Trust, 339 U.S. 306, 314 (1950); see also
11 U.S.C. § 1141(a) ("The provisions of a confirmed plan bind . . .
any creditor" (emphasis added)). Thus, for purposes of enforcing
bankruptcy orders, we inquire not into the reason for which the Tax-
ing Authorities received notice but whether the notice received was
"of such nature as reasonably to convey the required information."
Mullane, 339 U.S. at 314; see also Piedmont Trust Bank v. Linkous
(In re Linkous), 990 F.2d 160, 162 (4th Cir. 1993) (refusing to accord
finality to a bankruptcy court's order when the requisite notice was
inadequate).
_________________________________________________________________

*We recognize that in Holywell Corp. v. Smith , 503 U.S. 47, 58
(1992), the Supreme Court indicated that § 1141(a) could not bind a
creditor with postconfirmation claims. In Holywell, as in this case, the
government was seeking to collect taxes that accrued postconfirmation.
Unlike this case, however, the plan in Holywell "said nothing about
whether the trustee had to file income tax returns or pay any income tax
due." Id. at 51. Since the confirmation plan in this case directly states
that the Liquidating Trust will not be liable for stamp taxes, we do not
see how the Taxing Authorities can circumvent the holding of Celotex
that a bankruptcy court's final order cannot be collaterally attacked. See
Celotex, 115 S. Ct. at 1501.

                    9
Each of the Taxing Authorities received a copy of the proposed
reorganization plan, which included the now-contested paragraph 9.5.
While the plan and related documents were concededly complex
because of the size of the estate and the number of projects and credi-
tors involved -- making it understandable that the Taxing Authorities
might not want to sift through all of the information provided -- that
fact does not make the information that was provided insufficient. On
the contrary, the notice given provided explicitly that the transfers
both from the debtors to the Liquidating Trust and from the trust to
third-party purchasers would not be taxable. The Taxing Authorities
also received a document entitled Second Amended Disclosure State-
ment which gave them a complete listing of the estate's properties
and their location, alerting them to the fact that the confirmed plan
would require transfers of properties in their jurisdictions. Finally, the
State of Maryland and Montgomery County were directed to the spe-
cific import of the tax exemption provision since they were made par-
ties to a declaratory judgment proceeding on that issue.

In short, the Taxing Authorities, including Baltimore County, had
sufficient notice of both the plan and the order confirming it to put
them on legal notice of the plan's tax exempt provisions. Having
received that notice and failed to present any objection, they are now
barred from collaterally attacking the bankruptcy court's order. See
Celotex, 115 S. Ct. at 1501; Spartan Mills , 112 F.3d at 1257-58.

IV

While the Taxing Authorities cannot collaterally attack the sub-
stance of the bankruptcy court's order, even if it may have been in
error, they can and do question whether the bankruptcy court had
jurisdiction to approve the plan, and in particular to include paragraph
9.5 exempting certain transfers covered by the plan. They contend
first that the bankruptcy court's order confirming the plan exceeded
the scope of authority given by 11 U.S.C. § 1146(c), and second, that
the Eleventh Amendment bars enforcement of the bankruptcy court's
order against them. We address these arguments in order.

A

With regard to the scope of bankruptcy court authority under 11
U.S.C. § 1146(c), the Taxing Authorities correctly point out that fed-

                     10
eral tax exemptions in derogation of state taxing authority are to be
narrowly construed, permitting exemption only where it is clear that
Congress intended it to apply. See California State Bd. of Equaliza-
tion v. Sierra Summit, Inc., 490 U.S. 844, 851-52 (1989). But because
we are faced with the question of whether the Taxing Authorities are
barred from collaterally attacking a bankruptcy court order, the issue
before us is not whether the bankruptcy court misconstrued the scope
of § 1146(c), but whether the bankruptcy court had jurisdiction to
confirm a reorganization plan claiming an exemption from transfer
and recordation taxes. See Celotex, 115 S. Ct. at 1498 (noting that the
proper question is not correctness of order but jurisdiction to enter it).

Section 1146 is not a jurisdictional limitation on the bankruptcy
court any more than is any substantive law. It does not define the
court's power but at most directs how that power should be exercised.
Moreover, the Supreme Court has made clear that the jurisdictional
grant relevant here, 28 U.S.C. § 1334(b) (granting jurisdiction over
any proceeding "related to" a case under Bankruptcy Code), extends
broadly to any matter "related to" the bankruptcy. See id. at 1498-
1500 (noting that bankruptcy court jurisdiction may be more broad in
Chapter 11 cases than in Chapter 7 cases); see also Spartan Mills, 112
F.3d at 1255-56; 28 U.S.C. § 157(a) (allowing district courts to refer
to bankruptcy courts any proceeding "related to" a case under the
Bankruptcy Code). The statutorily defined tax effects of a bankruptcy
plan are unquestionably "related to" the bankruptcy case in which that
plan is filed.

At best, the Taxing Authorities' arguments about the scope of
§ 1146(c) relate to a potential exception from the binding force of a
court order -- which the Supreme Court has apparently never found
applicable -- where the order is "transparently invalid or ha[s] only
a frivolous pretense to validity." See Walker v. City of Birmingham,
388 U.S. 307, 315 (1967); see also Celotex, 115 S. Ct. at 1501 (deter-
mining that bankruptcy court injunction was not frivolous); GTE Syl-
vania, Inc. v. Consumers Union, 445 U.S. 375, 386-87 (1980) (noting
that orders were not challenged as having "only a frivolous pretense
to validity"). But the bankruptcy court's interpretation of the scope of
§ 1146(c) in the case before us was not so"transparently invalid."

Section 1146(c) of the Bankruptcy Code reads:

                     11
          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.

(Emphasis added). Thus, according to the statutory language, trans-
fers of property from the Liquidating Trust to third-party purchasers
are exempt from "a stamp tax or similar tax" if the transfers occur
"under a plan."

There can be little doubt that the terms of the plan and the trust
agreement in this case required transfers both from the debtors to the
Liquidating Trust and from the Liquidating Trust to third-party pur-
chasers. Section 7.1 of the plan provides that "all of the property shall
be liquidated, sold, transferred and/or distributed in accordance with
the terms of this Plan and the Trust Agreement." Indeed, the essence
of the plan was to have the Liquidating Trust take title to the Antonel-
lis' properties, sell the properties, and distribute the proceeds to credi-
tors.

The Taxing Authorities press further, however, arguing essentially
that the confirmation order lacks validity because such two-step trans-
actions are not explicitly condoned by the Bankruptcy Code. They
maintain that "nothing in [11 U.S.C.] § 1123 refers to subsequent
transfers or sales by either an entity to which the debtor's property is
transferred or by an interested party to whom the debtor's property is
distributed in kind." While the Taxing Authorities concede that trans-
fers from the debtors to the Liquidating Trust are covered by the tax
exemption of 11 U.S.C. § 1146(c), they argue that transfers from the
Liquidating Trust to third-party purchasers are not covered because
the debtors were not parties to the transfers.

If such second-step transfers were expressly prohibited by the
Bankruptcy Code, a contrary court order could perhaps raise ques-
tions about invalidity, but that is not the case here. Section 1123 of
the Bankruptcy Code sets forth the required and permitted contents of
a plan. It provides, in mandatory language, that:

          Notwithstanding any otherwise applicable nonbankruptcy
          law, a plan shall . . . provide adequate means for the plan's

                     12
          implementation, such as . . . transfer of all or any part of the
          property of the estate to one or more entities, whether orga-
          nized before or after the confirmation of such plan;

11 U.S.C. § 1123(a)(5)(B). And the same section provides in permis-
sive language:

          Subject to subsection (a) of this section, a plan may . . . pro-
          vide for the sale of all or substantially all of the property of
          the estate, and the distribution of the proceeds of such sale
          among holders of claims or interests; . . . and . . . [may]
          include any other appropriate provision not inconsistent
          with the applicable provisions of this title.

11 U.S.C. § 1123(b)(4) & (6). Thus, pursuant to 11 U.S.C.
§ 1123(b)(4), a reorganization plan may provide for liquidation and
distribution to creditors. If that permissible end is chosen, however,
§ 1123(a)(5) requires that adequate means for implementation be
included. Means which are otherwise adequate may be included as
long as they are "appropriate" and "not inconsistent" with applicable
provisions of the Bankruptcy Code. See 11 U.S.C. § 1123(b)(6).

We have no doubt that the Liquidating Trust is an"adequate
means" for liquidating substantially all of the Antonellis' property and
distributing its proceeds to creditors. Its terms thoroughly describe
how the trust is to effect liquidations and so limit its authority. Use
of a liquidating trust is certainly not a patently invalid means. More-
over, there has been no suggestion that the use of a liquidating trust
is inappropriate. To the contrary, it seems entirely appropriate to use
a liquidating trust to sell and distribute an extremely large estate, such
as the Antonellis', which would otherwise consume a large amount
of judicial resources and dissipate much of the estate in legal costs.
And finally, the Taxing Authorities have failed to point us to any pro-
vision of the Bankruptcy Code which is inconsistent with the use of
a liquidating trust. They argue, rather, that based on our decision in
In re Eastmet Corp., § 1123 cannot be construed to extend § 1146(c)
tax exemptions to "non-debtor transactions." Eastmet, 907 F.2d at
1490 (quoting In re Amsterdam Ave. Dev. Assoc. , 103 B.R. 454, 459-
60 (Bankr. S.D.N.Y. 1989)). We believe that their argument misreads
Eastmet.

                     13
In Eastmet, we held that the recording of a mortgage to secure a
loan used to purchase property from a bankruptcy estate was not itself
within the scope of 11 U.S.C. § 1146(c). We noted that "[t]he plan . . .
did not require that financing of the transaction be accomplished
through a purchase money deed of trust." Eastmet, 907 F.2d at 1489.
On the contrary, we observed, "the emanation of 100% of the pur-
chase price from the purchaser's bank accounts or from unsecured
loans would have been entirely acceptable under the plan." Id. Thus,
the way in which third-party purchasers financed their purchases was
irrelevant to the plan and their use of deed-of-trust financing therefore
was not "under a plan."

Unlike the deed of trust financing for third-party purchasers that
was involved in Eastmet, the transfers from the Liquidating Trust to
third-party purchasers were required by the plan of reorganization as
well as by the specific terms of the trust agreement that regulated the
conduct of the Liquidating Trust. In fact, the Liquidating Trust's
transfers of properties were the core mechanism by which the plan
proposed to liquidate the Antonellis' assets and distribute the pro-
ceeds to creditors. In one aspect of its function, the Liquidating Trust
stood in the shoes of the Antonellis, holding title to their property, and
in another aspect it acted on behalf of creditors by collecting and dis-
tributing the proceeds from the sale of that property. It was the sole
function of the Liquidating Trust to mediate the relationship between
debtor, third-party purchaser, and creditor. By contrast, in Eastmet,
the mortgages obtained by third-party purchasers were not necessary
to the reorganization effort. Third parties could have financed their
purchases or used their own capital to make them, and neither alterna-
tive was addressed in the Eastmet plan. The deed of trust only medi-
ated the relationship between third-party purchasers and their
financiers, both strangers to the bankruptcy estate. For that reason, we
expressed doubt about whether a reorganization plan could require the
use of mortgages, although we had no occasion to decide that narrow
question, much less the broader question of whether any non-debtor
transaction occurs "under a plan." See id. at 1489; see also In re
Amsterdam Ave. Dev. Assoc., 103 B.R. at 454 (Bankr. S.D.N.Y.
1989); In re Bel-Aire Investments, Inc., 142 B.R. 992 (Bankr. M.D.
Fla. 1992) (mortgage between debtor's successor and bank not "under
a plan"); In re Kerner Printing Co., Inc., 188 B.R. 121 (Bankr.
S.D.N.Y. 1995) (sale by creditor acting as liquidating agent, who

                     14
could sell property or purchase other creditors' claims and retain the
property, not "under a plan"). In the plan before us, however, the Liq-
uidating Trust was not formed or authorized to carry on business
independent of the plan's purposes. As a non-debtor entity, it was
formed solely to effectuate the liquidation and distribution of the
bankruptcy estate, and therefore it is entirely reasonable to conclude
that transactions to and from that entity occur"under a plan" for pur-
poses of 11 U.S.C. § 1146(c).

We conclude, accordingly, that the bankruptcy court's order, which
was affirmed on two levels of appeal, was far from claiming merely
a frivolous pretense to validity.

B

The Taxing Authorities contend for the first time on appeal that the
Eleventh Amendment -- immunizing the states from private suits in
federal court -- barred the bankruptcy court from exercising jurisdic-
tion over them in the confirmation proceeding. They contend that they
have not waived their Eleventh Amendment immunity. See Seminole
Tribe of Florida v. Florida, 116 S. Ct. 1114, 1132 n.16 (1996).
Because the bankruptcy court had no authority in its confirmation
order to bind the states to the bankruptcy plan, they argue, they are
entitled to attack collaterally the bankruptcy court's order confirming
the plan.

At the outset we note that the State of Maryland may, for the first
time on appeal, raise Eleventh Amendment immunity because that
immunity has jurisdictional aspects. See Schlossberg v. Maryland,
___ F.3d ___, ___ (4th Cir. July 22, 1997) (No. 96-1895). But we
doubt whether the counties can do so. It has long been the law that
the Eleventh Amendment does not bar suits in federal court against
political subdivisions of the state. See, e.g., Mount Healthy City Sch.
Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 280 (1977); Lincoln County
v. Luning, 133 U.S. 529, 530 (1890); cf. Pennhurst State Sch. and
Hosp. v. Halderman, 465 U.S. 89, 123 (1984) (allowing Eleventh
Amendment immunity for state and county officials where relief
"substantially concerns . . . an arm of the State," the state funded the
county program almost entirely, and state cooperation was essential
to the county program). But even should all three Taxing Authorities

                    15
be entitled to interpose an Eleventh Amendment defense, we conclude
that it is not applicable here.

The Eleventh Amendment, which provides, "The Judicial power of
the United States shall not be construed to extend to any suit in law
or equity, commenced or prosecuted against one of the United States
by Citizens of another State, or by Citizens or Subjects of any Foreign
State," U.S. Const. amend. XI, applies to limit Article III judicial
power, denying to federal courts "authority to entertain a suit brought
by private parties against a state without its consent." Ford Motor Co.
v. Department of Treasury of Indiana, 323 U.S. 459, 464 (1945); see
also Schlossberg, ___ F.3d at ___.

The confirmation order in this case was not entered in a suit
"against one of the United States" filed by a private party. The state
was not named a defendant, nor was it served with process mandating
that it appear in a federal court. While it was served with notice of
the proposed plan and its confirmation, it was free to enter federal
court voluntarily or to refrain from doing so. This is to be distin-
guished from the case in which a debtor, a trustee or other private per-
son files an adversary action against the state in the bankruptcy court,
causing the bankruptcy court to issue process summonsing the state
to appear. Such an adversary proceeding would be a suit "prosecuted
against one of the United States" and adjudication of that suit would
depend on the court's jurisdiction over the state, implicating the Elev-
enth Amendment's limitation on federal judicial power. See
Schlossberg, ___ F.3d at ___.

While resolution of an adversary proceeding against a state
depends on court jurisdiction over that state, the power of the bank-
ruptcy court to enter an order confirming a plan, including a provision
interpreting § 1146(c), derives not from jurisdiction over the state or
other creditors, but rather from jurisdiction over debtors and their
estates. See Spartan Mills, 112 F.3d at 1255 (application of Celotex
principle barring collateral attack depends on "bankruptcy court . . .
jurisdiction over [the debtor] and its assets"). Thus, neither the party
status nor the immunity of state and local governments has any
impact on the bankruptcy court's power to determine whether the
terms of a reorganization plan comply with federal law.

                    16
It is true that if a state wishes to challenge a bankruptcy court order
of which it receives notice, it will have to submit to federal jurisdic-
tion. As the Supreme Court explained in New York v. Irving Trust
Co., 288 U.S. 329, 333 (1933):

          The federal government possesses supreme power in respect
          of bankruptcies. If a state desires to participate in the assets
          of a bankrupt, she must submit to appropriate requirements
          by the controlling power; otherwise, orderly and expeditious
          proceedings would be impossible and a fundamental pur-
          pose of the Bankruptcy [Code] would be frustrated.

The state, of course, well may choose not to appear in federal court.
But that choice carries with it the consequence of foregoing any chal-
lenge to the federal court's actions. While forcing a state to make
such a choice may not be ideal from the state's perspective, it does
not amount to the exercise of federal judicial power to hale a state
into federal court against its will and in violation of the Eleventh
Amendment. Instead, it is the result of Congress' constitutionally
authorized legislative power to make federal courts the exclusive
venue for administering the bankruptcy law.

For the foregoing reasons, we affirm the judgment of the district
court.

AFFIRMED

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