Opinion
NO. 3:03-0521, Bankruptcy Case No. 399-02649
August 20, 2003
ORDER
Pending before the Court is the State of Tennessee, Department of Revenue's ("Appellant") Appeal of the Bankruptcy Court's Order entered on May 13, 2003 confirming the First Amended Joint Plan of Service Merchandise Company, Inc. and Its Affiliated Debtors, as Modified (Docket No. 1; Bankruptcy Court Docket No. 8683). For the reasons described herein, the decision of the Bankruptcy Court is AFFIRMED. Also pending before the Court is Service Merchandise Company, Inc. et al.'s ("Appellee") Motion for Order Requesting Oral Argument (Docket No, 6). Appellee's Motion (Docket No. 6) is DENIED.
IT IS SO ORDERED.
MEMORANDUM
This is an appeal (Docket No. 1; Bankruptcy Court Docket No. 8683) from the Bankruptcy Court's Order entered on May 13, 2003 (Docket No. 2; Bankruptcy Court Docket No. 8639) confirming the First Amended Joint Plan of Service Merchandise Company, Inc. and Its Affiliated Debtors, as Modified (the "Plan") over the objections of the State of Tennessee, Department of Revenue ("Appellant"). For the reasons described herein, the decision of the Bankruptcy Court is AFFIRMED. Also pending before the Court is Service Merchandise Company, Inc. et al.'s ("Appellee") Motion for Order Requesting Oral Argument (Docket No. 6). Appellee's Motion (Docket No. 6) is DENIED.The Court has jurisdiction to hear the appeal pursuant to 28 U.S.C. § 158(a). The standard of review is de novo for questions of law while findings of fact of the Bankruptcy Court are subject to a "clearly erroneous" standard of review. In re Downs, 103 F.3d 472 (6th Cir. 1996).
The facts (Docket Nos. 3, 4, and 5) show that on or about March 27, 1999, Appellee filed for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. § 101-1330, et seq. (the "Bankruptcy Code"). Appellant has filed various proofs of claim for pre-petition and post-petition priority tax liability. At issue in this case is a priority claim for pre-petition tax liability filed under section 507(a)(8) of the Bankruptcy Code. The claim has been amended several times and the current amount of the claim is approximately $580,000.00.
On April 4, 2003, Appellee filed the First Amended Joint Plan of Service Merchandise Company, Inc. and its Affiliate Debtors (Docket No. 4; Bankruptcy Court Docket No. 8452). On May 5, 2003, Appellant filed its objection to the Plan (Docket No. 5; Bankruptcy Court Docket No. 8559). The basis of Appellant's objection was that 1129(a)(9)(C) of the Bankruptcy Code requires payment of post confirmation interest on the amount of its claim. On May 12, 2003, the Bankruptcy Court held a hearing on the Plan confirmation and Appellant's objection. On May 13, 2003, the Bankruptcy Court entered its Findings of Fact, Conclusions of Law, and Order Under 11 U.S.C. § 1129(a) and (b) and F.R.Bankr.P. 3020 Confirming the First Amended Joint Plan of Service Merchandise Company, Inc. and its Affiliate Debtors, as Modified (Docket No. 2; Bankruptcy Court Docket No. 8639).
The issue presented by Appellant in this appeal is whether the Bankruptcy Court correctly confirmed the Plan over Appellant's objection that the Plan did not satisfy the requirements of 11 U.S.C. § 1129(a)(9)(C). Specifically, Appellant has asked this Court to review the following issues:
1) Whether the Bankruptcy Court erred in determining that the requirements for plan confirmation found in 11 U.S.C. § 1129(a)(9)(C) are inapplicable for priority tax claimants whose claims have not been either "allowed" or disallowed;
2) Whether the Plan language directing payment of the priority tax claim of Appellant "[o]n, or as soon as reasonably practicable after, the later of (a) the Effective Date, or (b) the date on which a Priority Tax Claim becomes an Allowed Priority Tax Claim . . ." constitutes a delay or deferral of payment requiring post confirmation interest pursuant to 11 U.S.C. § 1129(a)(9)(C); and
3) Whether the Plan fails to meet the confirmation requirements of 11 U.S.C. § 1129(a)(9)(C) by failing to provide that the priority tax claim of the Tennessee Department of Revenue is entitled to a reasonable rate of post confirmation interest from the Effective Date on the claim that is finally allowed.
Section 1129(a)(9)(C) of the Bankruptcy Code provides in relevant part:
(a) The court shall confirm a plan only if all of the following requirements are met:
(9) Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the plan provides that —
. . .
(C) with respect to a claim of a kind specified in section 507(a)(8) of this title, the holder of such claim will receive on account of such claim deferred cash payments, over a period not exceeding six years after the date of assessment of such claim, of a value, as of the effective date of the plan, equal to the allowed amount of such claim.11 U.S.C. § 1129(a)(9)(C).
Section 507(a)(8) of the Bankruptcy Code provides in relevant part:
(a) The following expenses and claims have priority in the following order:
(8) Eighth, allowed unsecured claims of governmental units . . .11 U.S.C. § 507(a)(8).
The Plan provides in relevant part:
2.2 Priority Tax Claims. On, or as soon as reasonably practicable after, the later of (a) the Effective Date, or (b) the date on which a Priority Tax Claim becomes an Allowed Priority Tax Claim, each Holder of an Allowed Priority Tax Claim against a Debtor shall receive in full satisfaction, settlement, release and discharge of, and in exchange for, such Allowed Priority Tax Claim, (A) Cash equal to the amount of such Allowed Priority Tax claim, or (B) such other less favorable treatment . . . as agreed upon by the parties.
(Bankruptcy Court Docket No. 8639 at A-18).
9.4 Interest on Claims. Unless otherwise specifically provided for in this Plan, the Confirmation Order, or required by applicable law, postpetition interest shall not accrue or be paid on Claims, and no Claim Holder shall be entitled to interest accruing on or after the Petition Date on any Claim. To the extent provided for in this Plan, the Confirmation Order, or required by applicable bankruptcy law, postpetition interest shall accrue on Claims at the applicable non-default rate. Unless otherwise specifically provided for in this Plan, the Confirmation Order, or required by applicable bankruptcy law, interest shall not accrue or be paid upon any Disputed Claim in respect to the period from the Petition Date to the date a final distribution is made thereon if and after such Disputed Claim becomes an Allowed Claim. Until the Effective Date, nothing herein shall waive the right of any creditor to seek postpetition interest. Nothing herein shall impair the rights of the Prepetition Senior Noteholders to receive postpetition interest on their notes from the Prepetition Subordinated noteholders in connection with the Subordination Rights.
(Bankruptcy Court Docket No. 8639 at A-40).
1.8 "Allowed Claim" means a Claim or any portion thereof:
. . .
(c) as to which a proof of claim has been timely filed with the Bankruptcy Court pursuant to the Bankruptcy Code, any Final Order of the Bankruptcy Court or other applicable bankruptcy law but only to the extent that such claim is identified in such proof of claim in a liquidated and non-contingent amount, and either (i) no objection to its allowance has been filed, or is intended to be filed, within the periods of limitation fixed by this Plan, the Bankruptcy Code or by any order of the Bankruptcy Court or (ii) any objection to its allowance has been settled or withdrawn, or has been denied by a Final Order.
(Bankruptcy Court Docket No. 8639 at A-4).
1.23 "Claims Objection Deadline" means as applicable (except for Administrative Claims) (a) the day that is the later of (i) the first Business Day that is ninety (90) days after the Effective Date, (ii) as to proofs of claim filed on or before the Bar Date, the first Business Day that is ninety (90) days after the filing of such proofs of claim, and (iii) as to proofs of claim filed after the Bar Date, the first Business Day that is ninety (90) days after a Final Order is entered deeming the late filed claim to be treated as timely filed, or (b) such later date as may be established by the Bankruptcy Court as may be requested by Reorganized Service Merchandise.
(Bankruptcy Court Docket No. 8639 at A-6).
The record of the hearing on Appellant's objection to the Plan and the Bankruptcy Court's confirmation of the Plan reflects that the Bankruptcy Court did not find that the requirements for confirmation of Section 1129(a)(9)(C) of the Bankruptcy Code were not applicable to Appellant's priority tax claim. Rather, the record reflects that the Bankruptcy Court found that the Plan as written did not call for deferred cash payment of Appellant's claim such that Section 1129(a)(9)(C) would apply, but provided for one lump-sum payment without interest to Appellant as soon as Appellant's claim became an "Allowed Claim" under the Plan (Docket No. 7 at 15-18). Thus, the essential issues before the Court are whether Appellant is receiving deferred cash payments under the Plan such that Section 1129(a)(9)(C) of the Bankruptcy Code would apply or, in the alternative, whether Appellee is required under applicable Bankruptcy law to pay interest on Appellant's claim during the pendency of the claim's process.
Appellant contends that Section 1129(a)(9)(C) of the Bankruptcy Code applies not only to "allowed" claims but also to claims that have neither been allowed nor disallowed at the time of confirmation. Appellant further contends that the effect of the Plan language which provides Appellee with a ninety day period following the Effective Date of the Plan to object to a claim provides for a limitless payout date and is ambiguous. Appellant argues that the net effect of the Plan language is to defer payment of Appellant's claim without interest in contravention of Section 1129(a)(9)(C) of the Bankruptcy Code.
In reaching the conclusion that the Plan provisions did not violate Section 1129(a)(9)(C) of the Bankruptcy Code, the Bankruptcy Court held that Section 1129(a)(9)(C) must be read in conjunction with Section 507 of the Bankruptcy Code. More specifically, that Section 507(a)(8) applies to "allowed" unsecured claims of governmental units and that Section 1129(a)(9)(C) only pertains to the type of claim specified in Section 507(a)(8), i.e. an "allowed" claim.
The Court agrees with the findings and conclusions of the Bankruptcy Court. The Plan does not defer payment of Appellant's claim, but simply provides for payment in full of the claim at the time it becomes an allowed claim as defined by the terms of the Plan. See. In re White Flower Farm Equipment, Company, 146 B.R. 736, 738-739 (Bankr. N.D. Ill. 1992) (Where plan terms specifically provide for payment of allowed priority tax claims without post confirmation interest at the time claims are allowed, Section 1129(a)(9)(C) is not applicable as any payments made to priority tax claimant are not deferred.) Therefore, the Court finds that Appellant is not entitled to post confirmation interest on its claim pursuant to Section 1129(a)(9)(C) of the Bankruptcy Code. Furthermore, the Court is neither aware nor has Appellant cited the Court to any other applicable Bankruptcy law which requires Appellee to pay post confirmation interest on Appellant's claim during the pendency of the claims process.
In addition, the Court finds that Appellant cannot now challenge for the first time on appeal the terms of the Plan which specifically define "Allowed Claim" as "a Claim . . . (c) as to which a proof of claim has been timely filed . . . and either (i) no objection to its allowance has been filed, or is intended to be filed, within the periods of limitation fixed by this Plan." (Bankruptcy Court Docket No. 8639 at A-4). The Plan also defines the "Claims Objection Deadline" as "the first Business Day that is ninety (90) days after the Effective Date" of the Plan (Bankruptcy Court
In reaching the conclusion that the Plan provisions did not violate Section 1129(a)(9)(C) of the Bankruptcy Code, the Bankruptcy Court held that Section 1129(a)(9)(C) must be read in conjunction with Section 507 of the Bankruptcy Code. More specifically, that Section 507(a)(8) applies to "allowed" unsecured claims of governmental units and that Section 1129(a)(9)(C) only pertains to the type of claim specified in Section 507(a)(8), i.e. an "allowed" claim.
The Court agrees with the findings and conclusions of the Bankruptcy Court. The Plan does not defer payment of Appellant's claim, but simply provides for payment in full of the claim at the time it becomes an allowed claim as defined by the terms of the Plan. See. In re White Flower Farm Equipment. Company, 146 B.R. 736, 738-739 (Bankr. N.D. Ill. 1992) (Where plan terms specifically provide for payment of allowed priority tax claims without post confirmation interest at the time claims are allowed, Section 1129(a)(9)(C) is not applicable as any payments made to priority tax claimant are not deferred.) Therefore, the Court finds that Appellant is not entitled to post confirmation interest on its claim pursuant to Section 1129(a)(9)(C) of the Bankruptcy Code. Furthermore, the Court is neither aware nor has Appellant cited the Court to any other applicable Bankruptcy law which requires Appellee to pay post confirmation interest on Appellant's claim during the pendency of the claims process.
In addition, the Court finds that Appellant cannot now challenge for the first time on appeal the terms of the Plan which specifically define "Allowed Claim" as "a Claim . . . (c) as to which a proof of claim has been timely filed . . . and either (i) no objection to its allowance has been filed, or is intended to be filed, within the periods of limitation fixed by this Plan." (Bankruptcy Court Docket No. 8639 at A-4). The Plan also defines the "Claims Objection Deadline" as "the first Business Day that is ninety (90) days after the Effective Date" of the Plan (Bankruptcy Court Docket No. 8639 at A-6). Appellant did not object to the definition of "Allowed Claim" during the confirmation hearing before the Bankruptcy Court. "`Issues not raised before the trial court are generally considered waived.'" In re Pannell, 253 B.R. 216, 219 (Bankr. S.D. Ohio 2000) (quoting In re Johnston, 209 F.3d 611, 612 (6th Cir. 2000)). In exceptional circumstances or where application of the rule would result in a miscarriage of justice an appellate court may exercise its discretion and review such issues. In re R.D.F. Developments. Inc., 239 B.R. 336, 340 (B.A.P. 6th Cir. 1999). The Court does not find that such exceptional circumstances exist in the present case. Thus, the Court finds that according to the clear language of the Plan, Appellant is barred from now arguing that it has an "allowed" claim until such time as Appellant's claim achieves allowed status under the terms of the Plan.
Accordingly, the Order (Docket No. 2; Bankruptcy Court Docket No. 8639) of the Bankruptcy Court is AFFIRMED.
IT IS SO ORDERED.