NVR Homes Inc v. Circuit Court Clerks ( 1999 )

CORRECTED OPINION
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: NVR, LP,
Debtor.
NVR HOMES, INCORPORATED,
Plaintiff-Appellee,
v.
CLERKS OF THE CIRCUIT COURTS FOR
ANNE ARUNDEL COUNTY, MARYLAND;
CLERKS OF THE CIRCUIT COURTS FOR
BALTIMORE, MARYLAND;
CLERKS OF THE CIRCUIT COURTS FOR
CARROLL COUNTY, MARYLAND;
CLERKS OF THE CIRCUIT COURTS FOR
No. 98-2211
FREDERICK COUNTY, MARYLAND;
CLERKS OF THE CIRCUIT COURTS FOR
HARFORD COUNTY, MARYLAND;
CLERKS OF THE CIRCUIT COURTS FOR
HOWARD COUNTY, MARYLAND;
CLERKS OF THE CIRCUIT COURTS FOR
MONTGOMERY COUNTY, MARYLAND;
CLERKS OF THE CIRCUIT COURTS FOR
PRINCE GEORGE'S COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR WASHINGTON COUNTY,
MARYLAND,
Defendants-Appellants,
and
FRANKLIN PARK BOROUGH; HAMPTON
TOWNSHIP; HAMPTON TOWNSHIP
SCHOOL DISTRICT; SENECA VALLEY
SCHOOL DISTRICT; MOON AREA
SCHOOL DISTRICT; MOON TOWNSHIP;
NORTH ALLEGHENY SCHOOL DISTRICT;
SHALER AREA SCHOOL DISTRICT;
COMMONWEALTH OF PENNSYLVANIA,
Defendants.
In Re: NVR, LP,
Debtor.
NVR HOMES, INCORPORATED,
Plaintiff-Appellee,
v.
COMMONWEALTH OF PENNSYLVANIA,
Defendant-Appellant,
and
No. 98-2244
FRANKLIN PARK BOROUGH; HAMPTON
TOWNSHIP; HAMPTON TOWNSHIP
SCHOOL DISTRICT; CLERKS OF THE
CIRCUIT COURTS FOR ANNE ARUNDEL
COUNTY, MARYLAND; CLERKS OF THE
CIRCUIT COURTS FOR BALTIMORE,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR CARROLL COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR FREDERICK COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR HARFORD COUNTY,
2
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR HOWARD COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR MONTGOMERY COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR PRINCE GEORGE'S
COUNTY, MARYLAND; CLERKS OF THE
CIRCUIT COURTS FOR WASHINGTON
COUNTY, MARYLAND; SENECA VALLEY
SCHOOL DISTRICT; MOON AREA
SCHOOL DISTRICT; MOON TOWNSHIP;
NORTH ALLEGHENY SCHOOL DISTRICT;
SHALER AREA SCHOOL DISTRICT,
Defendants.
In Re: NVR, LP,
Debtor.
NVR HOMES, INCORPORATED,
Plaintiff-Appellee,
v.
SENECA VALLEY SCHOOL DISTRICT;
SHALER AREA SCHOOL DISTRICT,
No. 98-2271
Defendants-Appellants,
and
FRANKLIN PARK BOROUGH; HAMPTON
TOWNSHIP; HAMPTON TOWNSHIP
SCHOOL DISTRICT; CLERKS OF THE
CIRCUIT COURTS FOR ANNE ARUNDEL
COUNTY, MARYLAND; CLERKS OF THE
CIRCUIT COURTS FOR BALTIMORE,
3
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR CARROLL COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR FREDERICK COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR HARFORD COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR HOWARD COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR MONTGOMERY COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR PRINCE GEORGE'S
COUNTY, MARYLAND; CLERKS OF THE
CIRCUIT COURTS FOR WASHINGTON
COUNTY, MARYLAND; COMMONWEALTH
OF PENNSYLVANIA,
Defendants.
In Re: NVR, LP,
Debtor.
NVR HOMES, INCORPORATED,
Plaintiff-Appellee,
v.
No. 98-2272
FRANKLIN PARK BOROUGH; HAMPTON
TOWNSHIP; HAMPTON TOWNSHIP
SCHOOL DISTRICT,
Defendants-Appellants,
and
CLERKS OF THE CIRCUIT COURTS FOR
ANNE ARUNDEL COUNTY, MARYLAND;
4
CLERKS OF THE CIRCUIT COURTS FOR
BALTIMORE, MARYLAND; CLERKS OF
THE CIRCUIT COURTS FOR CARROLL
COUNTY, MARYLAND; CLERKS OF THE
CIRCUIT COURTS FOR FREDERICK
COUNTY, MARYLAND; CLERKS OF THE
CIRCUIT COURTS FOR HARFORD
COUNTY, MARYLAND; CLERKS OF THE
CIRCUIT COURTS FOR HOWARD
COUNTY, MARYLAND; CLERKS OF THE
CIRCUIT COURTS FOR MONTGOMERY
COUNTY, MARYLAND; CLERKS OF THE
CIRCUIT COURTS FOR PRINCE
GEORGE'S COUNTY, MARYLAND;
CLERKS OF THE CIRCUIT COURTS FOR
WASHINGTON COUNTY, MARYLAND;
SENECA VALLEY SCHOOL DISTRICT;
MOON AREA SCHOOL DISTRICT; MOON
TOWNSHIP; NORTH ALLEGHENY
SCHOOL DISTRICT; SHALER AREA
SCHOOL DISTRICT; COMMONWEALTH OF
PENNSYLVANIA,
Defendants.
In Re: NVR, LP,
Debtor.
No. 98-2273
NVR HOMES, INCORPORATED,
Plaintiff-Appellee,
v.
5
MOON AREA SCHOOL DISTRICT; MOON
TOWNSHIP; NORTH ALLEGHENY
SCHOOL DISTRICT,
Defendants-Appellants,
and
FRANKLIN PARK BOROUGH; HAMPTON
TOWNSHIP; HAMPTON TOWNSHIP
SCHOOL DISTRICT; CLERKS OF THE
CIRCUIT COURTS FOR ANNE ARUNDEL
COUNTY, MARYLAND; CLERKS OF THE
CIRCUIT COURTS FOR BALTIMORE,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR CARROLL COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR FREDERICK COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR HARFORD COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR HOWARD COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR MONTGOMERY COUNTY,
MARYLAND; CLERKS OF THE CIRCUIT
COURTS FOR PRINCE GEORGE'S
COUNTY, MARYLAND; CLERKS OF THE
CIRCUIT COURTS FOR WASHINGTON
COUNTY, MARYLAND; SENECA VALLEY
SCHOOL DISTRICT; SHALER AREA
SCHOOL DISTRICT; COMMONWEALTH OF
PENNSYLVANIA,
Defendants.
Appeals from the United States District Court
for the Eastern District of Virginia, at Alexandria.
T. S. Ellis, III, District Judge.
(CA-97-1238-A, BK-92-11704-DOT)
6
Argued: April 7, 1999
Decided: July 12, 1999
Corrected opinion filed: August 16, 1999
Before WILKINSON, Chief Judge, and HAMILTON and
WILLIAMS, Circuit Judges.
_________________________________________________________________
Vacated in part, affirmed in part, and reversed in part by published
opinion. Judge Williams wrote the opinion, in which Judge Hamilton
joined. Chief Judge Wilkinson wrote an opinion concurring in part
and concurring in the judgment.
_________________________________________________________________
COUNSEL
ARGUED: Julia Melville Andrew, Assistant Attorney General, Balti-
more, Maryland, for Appellants. Arnold Murray Weiner, SNYDER,
WEINER, WELTCHEK, VOGELSTEIN & BROWN, Pikesville,
Maryland, for Appellee. ON BRIEF: J. Joseph Curran, Jr., Attorney
General of Maryland, Baltimore, Maryland; Robert D. Edmundson,
Senior Deputy Attorney General, Pittsburgh, Pennsylvania, for Appel-
lants. James M. Sack, SACK & ASSOCIATES, McLean, Virginia;
Allan P. Hillman, Nathan D. Adler, NEUBERGER, QUINN,
GIELEN, RUBIN & GIBBER, P.A., Baltimore, Maryland, for Appel-
lee.
_________________________________________________________________
OPINION
WILLIAMS, Circuit Judge:
On October 23, 1995, NVR Homes, Inc. (NVR), a former debtor
in bankruptcy, filed a motion in accordance with Federal Rule of
Bankruptcy Procedure 9014, seeking a declaration that 11 U.S.C.A.
§ 1146(c) (West 1993) exempted it from certain transfer and recorda-
7
tion taxes that it had paid in connection with the transfer of real prop-
erty during the bankruptcy period. The state and local taxing
authorities who had received and refused or failed to refund the recor-
dation and transfer tax proceeds were located in Pennsylvania and
Maryland. Pursuant to Rule 9014, each of the taxing authorities was
served with notice of the motion and each responded by filing
motions for abstention, dismissal, or summary judgment. On March
25, 1996, the bankruptcy court granted NVR's motion and held that
under § 1146(c), NVR was exempt from transfer and recordation
taxes on any real property transfers completed between April 6, 1992,
the date that NVR filed a bankruptcy petition, and September 30,
1993, the date that its reorganization plan was fully implemented and
the bankruptcy period ended.
Thereafter, the state taxing authorities1 filed motions requesting the
bankruptcy court reconsider its order in light of the Supreme Court's
interpretation of Eleventh Amendment immunity in Seminole Tribe v.
Florida, 116 S. Ct. 1114 (1996). On March 28, 1997, the bankruptcy
court issued an order amending its judgment dated March 25, 1996,
specifically holding that "§ 106 of the Bankruptcy Code is unconstitu-
tional and that the Eleventh Amendment precludes[the bankruptcy
court's previous order] from binding the Commonwealth of Pennsyl-
vania and the Maryland circuit court clerks [the state taxing authori-
ties] as collectors of a state transfer tax." (J.A. at 335.)
On appeal, the district court affirmed the bankruptcy court's judg-
ment that NVR was exempt from transfer and recordation taxes under
§ 1146(c). The district court reversed the bankruptcy court's decision
that the Eleventh Amendment immunized the state taxing authorities,
reasoning that the Rule 9014 motion was not a "suit" for Eleventh
Amendment purposes. The district court refused, however, to deter-
mine whether the declaratory judgment would be binding upon the
state taxing authorities. For the following reasons, we vacate in part,
affirm in part, and reverse in part.
_________________________________________________________________
1 We consider the state taxing authorities to be: the clerks of the circuit
courts for Anne Arundel, Baltimore, Carroll, Harford, Howard, Freder-
ick, Montgomery, Prince George's, and Washington Counties to the
extent they serve as the collectors of Maryland state taxes; and the
Department of Revenue for the Commonwealth of Pennsylvania.
8
I.
The facts of this appeal are largely undisputed and have been thor-
oughly recited by the lower courts. See Clerk of the Circuit Court v.
NVR Homes, Inc., 222 B.R. 514 (E.D. Va. 1998); In re NVR L.P., 206
B.R. 831 (Bankr. E.D. Va. 1997). We will only briefly address them
here.
During the 1980s, NVR was a leading homebuilder whose primary
operations were located in the states of Virginia and Maryland. In a
move to expand its operations in 1987, NVR acquired Ryan Homes,
a major homebuilder, and financed the acquisition with over
$450,000,000 in debt. The financing was provided by a consortium
of banks and the issuance of subordinated debt securities. A short
time later, NVR began experiencing declining operating margins and
had difficulty in meeting its substantial debt service commitments. Its
financial difficulties did not abate, and on April 6, 1992, NVR sought
protection under Chapter 11 of the Bankruptcy Code.
The bankruptcy court allowed NVR to continue its business opera-
tions essentially uninterrupted while it pursued the development and
confirmation of a reorganization plan. From April 6, 1992, the peti-
tion date, until September 30, 1993, the date NVR eventually
emerged from bankruptcy, NVR made 5,571 transfers of real property
and paid $8,349,103 in transfer and recordation taxes to state and
local taxing authorities. NVR paid just under $7,000,000 of this
amount to taxing authorities in Pennsylvania and Maryland.
On July 22, 1993, the bankruptcy court confirmed NVR's plan of
reorganization (the Plan), which satisfied the outstanding bank con-
sortium debt with funds from a new debt offering and basically trans-
formed the former subordinated debt holders into equity holders. One
section of the Plan, section 4.13, dealt specifically with the issue
before us and reads:
Pursuant to section 1146(c) of the Bankruptcy Code, the
issuance, transfer, or exchange of securities pursuant to the
Plan, and the transfer of, or creation of any lien on, any
property of any Debtor under, in furtherance of, or in con-
9
nection with the Plan shall not be subject to any stamp tax,
real estate transfer tax, recordation tax, or similar tax.
(J.A. at 43.) This section essentially invoked the exemptions already
allowed to debtors by 11 U.S.C.A. § 1146(c) (West 1993). Section
1146(c) provides that "[t]he issuance, transfer, or exchange of a secur-
ity, or the making or delivery of an instrument of transfer under a plan
confirmed . . ., may not be taxed under any law imposing a stamp tax
or similar tax." 11 U.S.C.A. § 1146(c).
The Plan was quickly implemented and NVR emerged from bank-
ruptcy on September 30, 1993. NVR then began pursuing refunds of
the recordation and transfer taxes paid during the bankruptcy period.
All of the taxing jurisdictions in the states of Delaware, New York,
North Carolina, and Virginia refunded the taxes without protest.
Maryland, Pennsylvania, and the taxing authorities therein, however,
refused to remit the requested refunds.
To obtain an interpretation of whether the tax payments were
exempted under the Bankruptcy Code and the Plan, NVR initiated a
Rule 9014 motion under the Federal Rules of Bankruptcy Procedure.
The bankruptcy court, and the district court on appeal, determined
that section 4.13 of the Plan, pursuant to 11 U.S.C.A. § 1146(c),
exempted NVR from paying transfer and recordation taxes during the
entire bankruptcy period. The bankruptcy court held, however, that
the state taxing authorities were not bound by the determination
because of their Eleventh Amendment immunity to suits in federal
court. On appeal, the district court reversed that holding and decided
that the Eleventh Amendment did not confer immunity upon the state
taxing authorities because the Rule 9014 motion was not a "suit"
under the Eleventh Amendment.
Two issues are presented to this Court on appeal: first, whether the
Eleventh Amendment bars the action in regard to the state taxing
authorities; and second, whether § 1146(c) exempts debtors in reorga-
nization from paying transfer and recordation taxes throughout the
bankruptcy period.
II.
"We review the judgment of a district court sitting in review of a
bankruptcy court de novo, applying the same standards of review that
10
were applied in the district court." Three Sisters Partners, L.L.C. v.
Harden (In re Shangra-La, Inc.), 167 F.3d 843, 847 (4th Cir. 1999).
Specifically, "[w]e review the bankruptcy court's factual findings for
clear error, while we review questions of law de novo." Loudoun
Leasing Dev. Co. v. Ford Motor Credit Co. (In re K&L Lakeland,
Inc.), 128 F.3d 203, 206 (4th Cir. 1997). Because each of the ques-
tions present a purely legal issue, our review is de novo.
A.
Since the Supreme Court issued Seminole Tribe v. Florida, 116 S.
Ct. 1114 (1996), states have hotly contested the extent of their Elev-
enth Amendment immunity in federal bankruptcy proceedings. Dur-
ing the past three years, this Court alone has published three opinions
clarifying the issue. See Virginia v. Collins (In re Collins), 1999 WL
183800 (4th Cir. Apr. 5, 1999); Maryland v. Antonelli Creditors' Liq-
uidating Trust, 123 F.3d 777 (4th Cir. 1997); Schlossberg v. Mary-
land (In re Creative Goldsmiths), 119 F.3d 1140 (4th Cir. 1997), cert.
denied, 118 S. Ct. 1517 (1998). In the case now before us, two states,
Maryland and Pennsylvania, again claim Eleventh Amendment
immunity from federal jurisdiction in a bankruptcy proceeding. They
argue that the lower courts' decisions holding certain transfers exempt
from state taxes under 11 U.S.C.A. § 1146(c) (West 1993) can be
viewed in only one of two ways: either the ruling was advisory and
thus constitutionally impermissible, or the proceeding itself amounted
to a "suit" from which Maryland and Pennsylvania were immune
under the Eleventh Amendment. If the Eleventh Amendment does
grant the states immunity, then the federal courts are deprived of
jurisdiction over claims against the states. See Edelman v. Jordan,
415 U.S. 651, 678 (1974). The protracted history of the Eleventh
Amendment supports Maryland's and Pennsylvania's claims of
immunity, and, therefore, we are bound to vacate the action to the
extent it applies to the states.
1.
Beginning with the Constitution's ratification, the American popu-
lace expressed concern that the new union would unduly subordinate
the sovereignty of the states through the exercise of federal judicial
power. Proponents of the Constitution, including Alexander Hamilton
11
and James Madison, ably met these attacks and dismissed the criti-
cisms as completely foreign to any previous or contemporary under-
standing of sovereign immunity. See Hans v. Louisiana, 134 U.S. 1,
12-14 (1890) (discussing the Founders' belief that a state would not
be subject to the power of the federal courts absent express consent);
Edelman, 415 U.S. at 662 n.9 (providing a summary of historical
statements concerning the sovereign immunity of the states); The
Federalist No. 81, at 487-88 (Alexander Hamilton) (Clinton Rossiter
ed., 1961). Unfortunately, concerns about state sovereignty proved
more legitimate than the Founders believed.
In Chisholm v. Georgia, 2 U.S. (2 Dall.) 419 (1793), the Supreme
Court held that a state could be subjected to the jurisdiction of federal
courts in suits filed by citizens of another state. In response, a shocked
nation soon remedied the unpalatable decision by ratifying the Elev-
enth Amendment, effectively reversing Chisholm . See Hans, 134 U.S.
at 11. The Eleventh Amendment states that "[t]he 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. Determined not again to mistake the
ratifying public's original intent, the Supreme Court held in Hans v.
Louisiana that a state's sovereign immunity also extended to suits
filed by one of its own citizens. See Hans, 134 U.S. at 20-21; see also
Seminole Tribe, 116 S. Ct. at 1130.
Over 100 years later, the Supreme Court re-emphasized the import
of the Eleventh Amendment and the significant restrictions it enforces
against federal court jurisdiction. In Seminole Tribe, the Court made
clear that Congress had no authority under its Article I grant of power
to abrogate the sovereign immunity of the states. See Seminole Tribe
116 S. Ct. at 1131-32. The Supreme Court recognized that the subse-
quently ratified Fourteenth Amendment fundamentally altered the
federal-state balance of power and, accordingly, gave Congress
license to abrogate the sovereign immunity of the states in order to
enforce the guarantees of the Fourteenth Amendment. See id. at 1125.
The primary question under the Eleventh Amendment thus became
whether Congress had the power to abrogate a state's sovereign
immunity -- i.e., whether it acted pursuant to its enforcement power
under the Fourteenth Amendment.
12
2.
In Schlossberg v. Maryland (In re Creative Goldsmiths), 119 F.3d
1140 (4th Cir. 1997), cert. denied, 118 S. Ct. 1517 (1998), this Court
applied the analysis mandated by Seminole Tribe to the Bankruptcy
Code's express abrogation of state sovereign immunity. See 11
U.S.C.A. § 106 (West Supp. 1999).2 Finding that Congress enacted
the Bankruptcy Code's abrogation provision pursuant to its power
under the Bankruptcy Clause, see U.S. Const., art. I, § 8, cl. 4, rather
than its authority under the Fourteenth Amendment, we concluded
that Bankruptcy Code's express abrogation of state sovereign immu-
nity was beyond Congress's authority, see Schlossberg, 119 F.3d at
1145-47.
This holding did not end the matter, however, because the Eleventh
Amendment does not reach every variety of judicial proceeding.
Before the Eleventh Amendment applies, the federal judicial action
must fairly be deemed a "suit." The Supreme Court roughly outlined
the contours of a "suit" for purposes of the Eleventh Amendment in
an early opinion authored by Chief Justice Marshall:
What is a suit? We understand it to be the prosecution, or
pursuit, of some claim, demand, or request. In law language,
it is the prosecution of some demand in a court of justice.
The remedy for every species of wrong is, says Judge
Blackstone, the being put in possession of that right whereof
the party injured is deprived. The instruments whereby this
remedy is obtained, are a diversity of suits and actions,
which are defined by the Mirror to be the lawful demand of
one's right. . . . Blackstone then proceeds to describe every
species of remedy by suit; and they are all cases where the
party suing claims to obtain something to which he has a
right.
_________________________________________________________________
2 Section 106(a) reads as follows:"Notwithstanding an assertion of
sovereign immunity, sovereign immunity is abrogated as to a govern-
mental unit to the extent set forth in this section with respect to the fol-
lowing . . . [listing Bankruptcy Code sections]." 11 U.S.C.A. § 106(a)
(West Supp. 1999).
13
Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 407-08 (1821) (internal
quotation marks omitted). Later, the Supreme Court observed that
suits could be defined by looking to "the essential nature and effect
of the proceeding." Ford Motor Co. v. Department of Treasury, 323
U.S. 459, 464 (1945); see also In re New York , 256 U.S. 490, 500
(1921) (holding that a determination under the Eleventh Amendment
requires "that the question is to be determined not by the mere names
of the titular parties but by the essential nature and effect of the pro-
ceeding, as it appears from the entire record"). A thorough analysis
of whether a judicial proceeding constitutes a suit must accordingly
consider both the procedural posture and substantive nature of the
proceeding. Moreover, if the substance of "the action is in essence
one for the recovery of money from the state, the state is the real, sub-
stantial party in interest and is entitled to invoke its sovereign immu-
nity from suit." Ford Motor Co., 323 U.S. at 464.
In Schlossberg, 119 F.3d at 1140, Maryland v. Antonelli Creditor's
Liquidating Trust, 123 F.3d 777 (4th Cir. 1997), and most recently in
Virginia v. Collins, 1999 WL 183800 (4th Cir. Apr. 5, 1999), we dis-
tinguished the exercise of a federal court's jurisdiction to dispose of
a debtor's estate from a suit against a state. In Schlossberg, a trustee
brought an action against the State of Maryland to recover a state
income tax payment that was alleged to be a preferential transfer. See
Schlossberg, 119 F.3d at 1142. We held that an adversary proceeding
initiated by the debtor's estate, seeking a return of property from the
state, violated the Eleventh Amendment and was impermissible
unless the state had waived its immunity.3 See id. at 1147.
Antonelli presented a very different scenario. In that case, the State
of Maryland brought suit in state court to recover unpaid transfer and
recordation taxes from the Antonelli Creditor's Liquidating Trust (the
Trust), a creation of the bankruptcy process. See Antonelli, 123 F.3d
at 779. The Trust removed the case to federal court and defended on
the ground that the state transfer and recordation taxes were exempt
under § 1146(c) of the Bankruptcy Code pursuant to the original
bankruptcy court disposition. See id. Maryland claimed that it was
_________________________________________________________________
3 On appeal, NVR does not contend that the states waived their sover-
eign immunity by agreeing to the bankruptcy court's jurisdiction, and,
therefore, we have no occasion to address the issue.
14
immune not from the immediate proceeding, but from the effects of
the original bankruptcy proceeding, which resulted in the order
exempting the taxes. See id. at 781. We disagreed. Central to our
holding was the fact that
[t]he 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 distinguished from the
case in which a debtor, a trustee or other private person 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 juris-
diction over the state, implicating the Eleventh Amend-
ment's limitation on federal judicial power.
Id. at 786-87. Because the federal court appropriately maintained
jurisdiction over the debtor's estate and Maryland was free to decide
whether to press its interests in the federal court, we concluded that
the Eleventh Amendment did not immunize Maryland from the
effects of a proceeding that merely confirmed a Chapter 11 reorgani-
zation plan.
In Collins, this Court's most recent decision applying the Eleventh
Amendment to a bankruptcy proceeding, we held that the Eleventh
Amendment did not bar a debtor's motion to reopen a bankruptcy
case for a determination upon whether a debt to Virginia was dis-
chargeable. See Collins, 1999 WL 183800 at *1. During the original
bankruptcy proceeding, which disposed of the debtor's estate, Vir-
ginia in its role as a creditor was served with notice, but chose not to
participate in the proceeding. See id. Four years later, Virginia
pressed its claim against the debtors, leading to the proceeding's
reopening and a determination that the debt to Virginia was dis-
charged. See id. As we stated, the jurisdiction "over the dischargea-
bility of debt, just like its jurisdiction to confirm a plan of
reorganization, ``derives not from jurisdiction over the state or other
creditors, but rather from jurisdiction over debtors and their estates.'"
15
Id. at *5 (quoting Antonelli, 123 F.3d at 787). We held that the
reopening to determine the status of the debt to Virginia was just a
continuation of the original proceeding, and, therefore, not a suit
against the state under the Eleventh Amendment. See id. at *6.
3.
From the above precedents, we are left to decide whether the case
before us is a suit against the state taxing authorities or merely a pro-
ceeding to clarify a Chapter 11 plan of reorganization. As we must,
we turn to an evaluation of the procedure and substance of NVR's
Rule 9014 motion. As to the case's procedural posture, two issues are
important: first, the degree of coercion exercised by the federal court
in compelling the state to attend, see Antonelli , 123 F.3d at 786-87;
and second, whether the resolution, or the remedy, would require our
jurisdiction over the state, see id. The substantive consideration
focuses upon whether the action was, as stated by Chief Justice Mar-
shall, "the prosecution of some demand in a Court of justice," as
opposed to the orderly disposition of an estate, with the states' role
limited to that of any other creditor. Cohens , 19 U.S. (6 Wheat.) at
407; see Ford Motor Co., 323 U.S. at 464.
At first glance, it appears that this case mirrors Antonelli because
both cases pose the issue of whether a debtor is entitled to an exemp-
tion from taxes under 11 U.S.C.A. § 1146(c) (West 1993). See
Antonelli, 123 F.3d at 779. That, however, is where the substantive
and procedural similarities end. In Antonelli , the federal courts were
called upon merely to conclude whether a reorganization plan com-
plied with federal law. See id. at 787. That interpretive process, by
defining the rights and disposition of the estate, collaterally affects the
rights of virtually every party related to the estate, including owners,
creditors, and employees -- even if one happens to be a state. That
process, however, generally does not force any party to participate. It
in fact may be of some advantage to the remaining participants if a
creditor chooses not to participate and consequently forfeits a claim.
In Antonelli, Maryland claimed immunity from the legal interpreta-
tions emanating from the Chapter 11 proceeding when it later brought
suit against the Trust operating pursuant to the reorganization plan.
See id. at 786-87. The Eleventh Amendment, of course, does not free
Maryland from federal law, but simply the jurisdiction of federal
16
courts. The Chapter 11 proceeding attempted neither to call Maryland
into federal court nor to enforce a federal court order against it.
Indeed, the only reason why the issue arose was because Maryland
sued to recover funds from the Trust. See id. at 779.
The circumstances before us are easily distinguished and look a
great deal more like those present in Schlossberg. As framed, both
Schlossberg and the present case sought the payment of funds held by
the state; in Schlossberg it was the avoidance of an alleged preferen-
tial transfer to the state, and here, it is the return of allegedly exempt
tax payments made to the state. Furthermore, both situations require
the bankruptcy court to maintain jurisdiction over the states. A full
review of these crucial characteristics -- i.e., the coercion exercised
against the states, whether the resolution required federal jurisdiction
over the states, and the substance of the remedy sought -- leads us
to conclude that this bankruptcy court proceeding was indeed a suit
prosecuted against Maryland and Pennsylvania.
To begin with, this action was initiated as a motion under Rule
9014 of the Federal Rules of Bankruptcy Procedure. Rule 9014 is
entitled "Contested Matters" and as commentators have noted, it is
unlike an administrative matter in bankruptcy because "there are (at
least) two parties who are opposing each other with respect to relief
sought by one of them." 10 Collier on Bankruptcy ¶ 9014.01 (Law-
rence P. King ed., 15th ed. 1999). The motion thus set NVR's inter-
ests at odds with the states'. We recognize, however, that the
bankruptcy court did not issue a summons to either Maryland or
Pennsylvania, although they were served with notice as mandated by
Rule 9014. The coercion exercised by the bankruptcy court towards
Maryland and Pennsylvania was thus no greater than in a proceeding
to determine the disposition of a debtor's estate-- the state had notice
of the proceeding and was free to join the action, but was not com-
pelled to submit to federal court jurisdiction. As we have stated on
other occasions, this position was not an enviable one for the states
because they either had to enter federal court to defend their rights or
to allow the court to proceed without the benefit of their arguments.
See Collins, 1999 WL 183800 at *6. Nevertheless,"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 Amend-
ment." Antonelli, 123 F.3d at 787. Accordingly, this characteristic of
17
the proceeding does not compel us to hold that the action was a suit
against the states.
The ultimate resolution of the dispute between NVR and the states
does require, however, that the federal courts exercise jurisdiction
over the states. The states persuasively framed this issue by noting
that if the federal court action could not result in ordering the states
to return the tax payments, then any opinion issued would be advisory
and improper. See Hewitt v. Helms, 482 U.S. 755, 761 (1987) ("The
real value of the judicial pronouncement -- what makes it a proper
judicial resolution of a ``case or controversy' rather than an advisory
opinion -- is in the settling of some dispute which affects the behav-
ior of the defendant towards the plaintiff."). The district court
attempted to tip-toe around the issue by stating,"Neither reached nor
decided here is the question whether the bankruptcy court's [order
declaring NVR exempt from the transfer and recordation taxes] is
binding in any way on the [state] [t]axing [a]uthorities." Clerk of the
Circuit Court v. NVR Homes, Inc., 222 B.R. 514, 521 (E.D. Va.
1998). It is apparent, however, that absent the ability of the bank-
ruptcy court to exercise jurisdiction over the states and compel the
turnover of the tax payments, no remedy effectively could be granted.
This case is indeed one in which "adjudication . . . depend[s] on the
court's jurisdiction over the state." Antonelli, 123 F.3d at 787. This
finding alone is enough to determine that the action, if it is to meet
the requirements of Article III, is a suit against the states.
Moreover, the substance of NVR's motion demands affirmative
action by Maryland and Pennsylvania. See Cohens , 19 U.S. (6 Wheat)
at 407-08; Texas v. Walker, 142 F.3d 813, 823 (5th Cir. 1998) (noting
that adversary proceedings initiated against a state during the bank-
ruptcy process, absent a waiver, would offend the Eleventh Amend-
ment). NVR is demanding payment from the Maryland and
Pennsylvania treasuries. Although federal law may reign supreme in
the bankruptcy context, the federal courts do not necessarily reign
supreme over an unconsenting state's treasury. See, e.g., Sacred Heart
Hosp. v. Pennsylvania (In re Sacred Heart Hosp.), 133 F.3d 237, 243
(3d Cir. 1998) (citing Seminole Tribe, 517 U.S. at 71-74) ("Even
when the Constitution vests in Congress complete law-making author-
ity over a particular area, the Eleventh Amendment prevents congres-
sional authorization of suits by private parties against unconsenting
18
States."). As courts have recognized in similar contexts, a state is
closely identified with its treasury and an action leading to an order
forcing a payment to citizens is the quintessential"suit" under the
Eleventh Amendment. See Hess v. Port Authority Trans-Hudson
Corp., 513 U.S. 30, 48-49 (1994) (noting the almost unanimous view
that the primary factor in determining whether a state is immune from
a federal judicial proceeding depends upon whether the action directly
impacts the state treasury); Ford Motor Co., 323 U.S. at 464; Gray
v. Laws, 51 F.3d 426, 433 (4th Cir. 1995) ("[I]t appears that a deter-
mination that the state treasury will be liable for a particular judgment
is largely, if not wholly, dispositive of Eleventh Amendment immu-
nity . . . ."); see also CSX Transp., Inc. v. Board of Public Works, 138
F.3d 537, 541 (4th Cir.) (distinguishing actions that have direct
effects on a state treasury with those having only ancillary effects),
cert. denied, 119 S. Ct. 63 (1998); cf. Hoffman v. Connecticut Dept.
of Income Maintenance, 492 U.S. 96, 102 (1989) (holding that 11
U.S.C.A. § 106(c) (West 1993) does not allow federal courts to enter
money judgments against the states).4 The demand for money from a
state is a strong indication that a federal judicial proceeding is indeed
a suit against the state under the Eleventh Amendment.
In sum, despite the fact that neither Maryland nor Pennsylvania
suffered the indignity of being summonsed to appear in a federal
court, we determine that they are immune from the prosecution of
NVR's Rule 9014 motion. The motion initiated a "contested matter"
pitting Maryland and Pennsylvania against NVR, a citizen of their
own state or of another state. The "suit" clearly sought a determina-
tion that the states owed NVR money -- repayment of exempt trans-
fer and recordation taxes -- and a favorable decision would require
that a federal court raid Maryland's and Pennsylvania's treasuries.
Because NVR "commenced or prosecuted" a suit against the states,
sovereign immunity applies, and the suit is barred as to the states.
_________________________________________________________________
4 Concurring in Hoffman v. Connecticut Dept. of Income Maintenance,
492 U.S. 96 (1989), Justice Scalia found it unnecessary to interpret
§ 106(c), and instead stated that "Congress lacks authority under the
Bankruptcy Clause to abrogate the States' immunity from money-
damages actions." United States v. Nordic Village, Inc., 503 U.S. 30, 33
(1992) (summarizing Justice Scalia's concurrence in Hoffman, 492 U.S.
at 105).
19
The district court's holding that the states might not be bound by
a federal interpretation of § 1146(c), secures no satisfaction for NVR,
thus making a decision advisory and beyond a federal court's Article
III power.5 We think it best to avoid such judicial gerrymandering
and, instead, concede that our constitutional power to enforce federal
bankruptcy law, absent a waiver of immunity, does not allow for the
forced extraction of payments from a sovereign state's treasury.
B.
Although our holding above moots the issue of a§ 1146(c) exemp-
tion as applied to the state taxing authorities, it does not bar the action
in relation to the local taxing authorities. Local governments do not
enjoy sovereign immunity under the Eleventh Amendment. See
Monell v. Department of Social Servs., 436 U.S. 658, 690 n.54
(1978); Gray, 51 F.3d at 431.
The local taxing authorities argue that a proper interpretation of
§ 1146(c) does not provide tax exemptions for preconfirmation trans-
fers taking place in the ordinary course of business. Both the bank-
ruptcy court and the district court rejected that argument, however,
_________________________________________________________________
5 If, instead, our decision would act only as res judicata in a later state
court or state administrative proceeding, then the issuance of the judg-
ment would still be improper. The Supreme Court observed in a similar
circumstance:
We think that the award of a declaratory judgment in this situa-
tion would be useful in resolving the dispute over the past law-
fulness of respondent's action only if it might be offered in state-
court proceedings as res judicata on the issue of liability, leaving
to the state courts only a form of accounting proceeding whereby
damages or restitution would be computed. But the issuance of
a declaratory judgment in these circumstances would have much
the same effect as a full-fledged award of damages or restitution
by the federal court, the latter kinds of relief being of course pro-
hibited by the Eleventh Amendment.
Green v. Mansour, 474 U.S. 64, 73 (1985). The Court also noted that "if
the federal judgment would not have such an effect, then it would serve
no useful purpose as a final determination of rights." Id. (internal quota-
tion marks omitted).
20
and held that § 1146(c) exempted NVR from paying the transfer and
recordation taxes on the numerous property transfers that it accom-
plished throughout the bankruptcy period. See NVR Homes, Inc., 222
B.R. at 519. In reaching this determination, the courts relied on sec-
tion 4.13 of the Plan as authorized by § 1146(c) of the Bankruptcy
Code.
For convenience, we will restate the terms of those provisions here.
Section 1146(c) provides that "[t]he issuance, transfer, or exchange of
a security, or the making or delivery of an instrument of transfer
under a plan confirmed . . ., may not be taxed under any law imposing
a stamp tax or similar tax." 11 U.S.C.A. § 1146(c). Section 4.13 of the
Plan reads:
Pursuant to section 1146(c) of the Bankruptcy Code, the
issuance, transfer, or exchange of securities pursuant to the
Plan, and the transfer of, or creation of any lien on, any
property of any Debtor under, in furtherance of, or in con-
nection with the Plan shall not be subject to any stamp tax,
real estate transfer tax, recordation tax, or similar tax.
(J.A. at 43.) The parties do not dispute that the transfer and recorda-
tion taxes at issue fell under the plain terms of§ 1146(c) or that the
property transfers constituted "[t]he issuance, transfer, or exchange of
a security, or the making or delivery of an instrument of transfer."
Instead the question presented to us is whether the transfers were
made "under a plan confirmed" -- in accordance with the statute.
The lower courts reasoned that all of the property transfers con-
summated during the bankruptcy period were necessary to NVR's
reorganization and emergence from bankruptcy. Therefore, they con-
cluded that the transfers were "all in furtherance of, or in connection
with the Plan," under section 4.13. Furthermore, the lower courts held
that the necessity of the transfers satisfied § 1146(c)'s requirement
that they be made "under a plan confirmed." 6 This logic has enjoyed
_________________________________________________________________
6 The bankruptcy court stated:"NVR's transfers of real property at
issue here were made clearly ``in furtherance of' and ``in connection with'
the Plan. They were crucial to the formulation, the confirmation, and the
21
some acceptance by other courts, primarily by courts claiming to
adhere to the Second Circuit's decision in City of New York v.
Jacoby-Bender, Inc. (In re Jacoby-Bender, Inc.), 758 F.2d 840 (2d
Cir. 1985).
In Jacoby-Bender, the Second Circuit faced the question of
whether § 1146(c) could exempt a debtor from paying city transfer
taxes on a Chapter 11 property sale that was not specifically autho-
rized in a reorganization plan, which already had been confirmed by
the bankruptcy court. See id. at 841; Jacoby-Bender, 40 B.R. 10, 11-
12 (Bankr. E.D.N.Y. 1984). The succinct issue presented was thus
whether the confirmed reorganization plan encompassed the property
sale, thereby making it part of a "plan confirmed" under § 1146(c).
Holding that § 1146(c) extended to the property sale, the court noted
that it was irrelevant whether the plan "empower[ed] the debtor to
make a specific sale or deliver a specific deed." Jacoby-Bender, 758
F.2d at 841 (emphasis added). Instead, the court framed the question
as whether the sale was "necessary to the consummation of a plan."
Id. at 842. The Second Circuit thus applied its test solely to interpret
the extent of a reorganization plan.
Unlike the case before us, Jacoby-Bender did not deal with a pre-
confirmation transfer, but a postconfirmation transfer that, although
not specifically authorized by the plan, was clearly necessary to the
confirmed plan's consummation, i.e., the eventual emergence from
bankruptcy and, as the court decided, it was thereby implicitly autho-
rized by the plan. Depending on the type and size of debtor at issue
and the complexity of the reorganization, a reorganization plan might
well be worded either in specific terms identifying each and every
transfer or in much broader language that generally outlines the activ-
_________________________________________________________________
consummation of the Confirmed Plan, and were necessary to the Debt-
ors' emergence from bankruptcy." (J.A. at 286-87.)
Similarly, the district court stated: "[T]he post-petition, pre-
confirmation property transfers here in issue enabled NVR to remain a
viable operation and avoid liquidation. Thus, nothing in the language of
the Plan nor in the statutory exemption itself restricts the application of
§ 1146(c) to transactions occurring after the Plan's confirmation." NVR
Homes, Inc., 222 B.R. at 519 (footnote omitted).
22
ities that must occur to consummate the plan. We do not take issue
with the Second Circuit's logic as it was applied in Jacoby-Bender
because it was employed to interpret a plan-- i.e., to identify which
transfers were necessary to, and thus contemplated by, "a plan con-
firmed."
Lower courts, however, have extended the Second Circuit's lan-
guage and altered Jacoby-Bender's holding, changing the test from
"necessary to the consummation of a plan," to"necessary to the con-
firmation of a plan." See City of New York v. Smoss Enters. Corp. (In
re Smoss Enters. Corp.), 54 B.R. 950, 951 (E.D.N.Y. 1985) (finding
that a sale was under a plan because "the transfer of property was
essential to the confirmation of the plan" (emphasis added)). Courts
began using this seemingly slight alteration of the Second Circuit's
language -- "confirmation" for "consummation" -- and applied it to
the interpretation of the scope of § 1146(c) itself, rather than just a
plan's provisions.
The fundamental difference between the consummation of a plan
and the confirmation of a plan is the timing of the events within the
bankruptcy process. Consummation or execution of a reorganization
plan cannot take place until the bankruptcy court first confirms a plan.
See Fed. R. Bankr. P. 3020, 3022. By changing and applying Jacoby-
Bender's holding to new and different circumstances, courts used this
altered analysis not only to determine what transfers were "under a
plan," but also what transfers were "under a plan confirmed." These
decisions embraced the belief that if a transfer was"essential to the
confirmation of the plan," then it was "under a plan confirmed." See
In re Permar Provisions, Inc., 79 B.R. 530, 534 (Bankr. E.D.N.Y.
1987). Naturally, many preconfirmation transfers then were held to
fall under § 1146(c), something that the Second Circuit never held.
See Smoss Enters. Corp., 54 B.R. at 951; In re Lopez Dev., Inc., 154
B.R. 607, 609 (Bankr. S.D. Fla. 1993); In re Permar Provisions, Inc.,
79 B.R. at 534. We think it is error to twist the Second Circuit's lan-
guage to the defeasance of § 1146(c)'s own terms.
Although § 1146(c) relies upon the interpretation of a reorganiza-
tion plan to determine which transfers fall within the scope of the plan
itself, § 1146(c) determines the ultimate extent of its operation. There-
fore, holding that every transfer "essential" to a plan's confirmation
23
is by definition "under a plan confirmed" is fundamentally flawed.
Such a holding makes a plan's terms the master of§ 1146(c), instead
of deferring to the statute itself. Accordingly, we believe the proposi-
tion that every transfer necessary to the confirmation of a plan is
"under a plan confirmed" to be without basis in § 1146(c).
In the case before us, NVR advances this flawed logic to claim
exemptions on all of its bankruptcy period transfers, both pre- and
post-Plan confirmation. The taxing authorities argue to the contrary
that any transfers in the ordinary course of business taking place prior
to the Plan's confirmation date are not exempt from the recordation
and transfer taxes. Although we think it irrelevant under § 1146(c)
whether the transfers took place in the ordinary course of business, we
agree with the taxing authorities regarding the timing of § 1146(c)'s
application, and conclude that transfers taking place prior to the date
of a reorganization plan's confirmation are not covered by § 1146(c).7
First, § 1146(c) exclusively, and not a plan's provisions, control the
extent of the statute's own operation. Second , the language of
§ 1146(c) is plain and requires no great manipulation to interpret its
terms.
We are guided to a restrictive interpretation of§ 1146(c)'s reach by
the Supreme Court's holding in California State Board of Equaliza-
tion v. Sierra Summit, Inc., 490 U.S. 844 (1989), which stated that
"[a]lthough Congress can confer an immunity from state taxation,
. . . a court must proceed carefully when asked to recognize an
exemption from state taxation that Congress has not clearly
expressed." Id. at 851-52 (citations and internal quotation marks omit-
ted). This passage clearly indicates that tax exemptions should be
construed narrowly in favor of the state. It follows that we cannot
allow private parties, who would fervently pursue every possible tax
advantage, to interpret and extend statutory tax exemptions through
the auspices of a reorganization plan, even if the plan is eventually
confirmed by a court.
_________________________________________________________________
7 The local taxing authorities do not argue that the transfers occurring
after the date of confirmation and during the remainder of the bankruptcy
period are covered by 11 U.S.C.A. § 1146(c) (West 1993).
24
The relatively straightforward issue before us is thus whether pre-
confirmation transfers are "under a plan confirmed." The district court
concluded that neither "the language of the plan nor . . . the statutory
exemption itself restricts the application of § 1146(c) to transactions
occurring after the Plan's confirmation." NVR Homes, Inc., 222 B.R.
at 519. Because we are bound to interpret the text of § 1146(c) in
accordance with its plain meaning using the ordinary understanding
of words, we must disagree. See Perrin v. United States, 444 U.S. 37,
42 (1979).
There is no question that the Plan was eventually confirmed and
thus became a "plan confirmed." Furthermore, because the Plan cov-
ered all transfers "in furtherance of, or in connection with the Plan,"
we have no doubt that, if allowed by § 1146(c), the Plan as confirmed
would encompass the preconfirmation transfers. The question is
whether the word "under," as used in § 1146(c), could extend the stat-
ute's effect to preconfirmation transfers. To ascertain the ordinary
understanding of "under," we turn to the dictionary. See MCI Tele-
comm. Co. v. AT&T Corp., 512 U.S. 218, 228 (1994) (discussing the
use of dictionary definitions to interpret statutory text). Black's Law
Dictionary defines "under" as "``inferior' or ``subordinate.'" Black's
Law Dictionary 1525 (6th ed. 1990). Another standard dictionary
defines "under" as "[w]ith the authorization of." See Webster's II New
Riverside University Dictionary 1256 (1988). Logically reading these
definitions in the context of § 1146(c), we cannot say that a transfer
made prior to the date of plan confirmation could be subordinate to,
or authorized by, something that did not exist at the date of transfer
-- a plan confirmed by the court.
NVR states that "[c]onsistent with the legislative history and judi-
cial interpretations of § 1146(c), NVR's Confirmed Plan (Section
4.13), and the Court's Confirmation Order[, NVR was] provided
[with] a § 1146(c) exemption for transfer of any [of its] property
``under, in furtherance of or in connection with' the Plan." (Appellee's
Br. at 28-29.) In other words, by mixing § 1146(c), the Plan, the bank-
ruptcy court's order, and a dash of legislative history, private parties
in partnership with federal courts can create new and improved tax
exemptions for debtors in reorganization proceedings. We do not take
the statutory mandates of Congress and the integrity of local law so
lightly, nor do we view our own power so expansively. Instead, Con-
25
gress alone, acting according to its legislative authority under the
Bankruptcy Clause in conjunction with the Supremacy Clause, has the
ability to preempt the enforcement of other law in the bankruptcy
context. See, e.g., Railway Labor Executives' Ass'n v. Gibbons, 455
U.S. 457, 473 (1982); Perez v. Campbell, 402 U.S. 637, 652 (1971);
Antonelli, 123 F.3d at 781. It has done so plainly through the lan-
guage of § 1146(c).
We must conclude that Congress, by its plain language, intended
to provide exemptions only to those transfers reviewed and confirmed
by the court. Congress struck a most reasonable balance. If a debtor
is able to develop a Chapter 11 reorganization and obtain confirma-
tion, then the debtor is to be afforded relief from certain taxation to
facilitate the implementation of the reorganization plan. Before a
debtor reaches this point, however, the state and local tax systems
may not be subjected to federal interference. Reasonable or not, how-
ever, we are bound to implement the statute as it is written, and, there-
fore, hold that the tax exemptions contained in§ 1146(c) may apply
only to transfers under the Plan occurring after the date of confirma-
tion.
III.
Summarizing our decision, because the Eleventh Amendment
grants immunity to Maryland and Pennsylvania, the judgment is
reversed and the district court's order is vacated as to the state taxing
authorities. Because we determine that 11 U.S.C.A.§ 1146(c) (West
1993) does not exempt NVR from paying transfer and recordation
taxes to the local taxing authorities prior to the Plan's confirmation,
we also reverse the district court's decision insofar as it allowed tax
exemptions on transfers occurring prior to the date of Plan confirma-
tion. We do, however, affirm the district court's conclusion that
§ 1146(c) grants tax exemptions to property transfers occurring under
the confirmed Plan, and thus district court's judgment stands to the
extent it covers transfers occurring after the date of Plan confirmation.
VACATED IN PART, AFFIRMED IN
PART, AND REVERSED IN PART
26
WILKINSON, Chief Judge, concurring in part and concurring in the
judgment:
I concur in sections I and II.A of the majority opinion. I also agree
that 11 U.S.C. § 1146(c) does not apply to preconfirmation transfers.
I do not agree, however, that the section's plain language compels this
conclusion.
Section 1146(c) provides:
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.
The majority holds that the phrase "under a plan confirmed under sec-
tion 1129 of this title" plainly excludes transfers occurring prior to
confirmation. The majority finds this plain meaning in the word
"under," which it defines as "``inferior' or ``subordinate.'" See ante at
25 (quoting Black's Law Dictionary 1525 (6th ed. 1990)). Because,
the majority concludes, "a transfer made prior to the date of plan con-
firmation could [not] be subordinate to . . . something that did not
exist at the date of transfer -- a plan confirmed by the court," the term
"under" must limit section 1146(c)'s applicability to postconfirmation
transfers. Id.
With respect, I disagree. It is not plain to me that section 1146(c)
contains a temporal element. It is also not clear that one must read the
section to say anything about the relationship between plan confirma-
tion and the timing of a transfer. It is equally possible that the provi-
sion requires only that the transfer occur "under" -- i.e., that it be
inferior or subordinate to -- "a plan" that is ultimately "confirmed."
In other words, the fact rather than the timing of plan confirmation is
the critical issue. In a complicated reorganization a debtor-in-
possession may operate for some time pursuant to the terms of an
unconfirmed plan while it negotiates with its creditors. It is far from
obvious that those transfers fall outside section 1146(c).*
_________________________________________________________________
*If Congress used the words "under a plan ultimately confirmed," that
would have made the matter clear. Or if Congress used the words "under
a confirmed plan," that would have made its intentions obvious. Con-
gress used neither phrasing -- hence the ambiguity.
27
Moreover, reading the phrase to require only that the plan ulti-
mately be confirmed would comport with a central purpose of our
bankruptcy laws: "permitting business debtors to reorganize and
restructure their debts in order to revive the debtors' businesses and
thereby preserve jobs and protect investors." Toibb v. Radloff, 501
U.S. 157, 163 (1991); see also Landmark Land Co. v. Resolution
Trust Corp. (In re Landmark Land Co.), 973 F.2d 283, 288 (4th Cir.
1992) ("[T]he purpose of Chapter 11 is reorganization . . . ."). Apply-
ing section 1146(c) to transfers made during the preconfirmation
period may provide substantial funds to the debtor. See, e.g., In re
Lopez Dev., Inc., 154 B.R. 607 (Bankr. S.D. Fla. 1993) (exempting
preconfirmation transfers from $33,600 in stamp taxes). These funds
would permit the debtor to emerge from bankruptcy and thereby to
generate substantial long-term tax revenues.
Nevertheless, the majority's reading of section 1146(c) is a reason-
able one. And when construing an alleged federal abrogation of state
and local taxing authority a "court must proceed carefully." California
State Bd. of Equalization v. Sierra Summit, Inc., 490 U.S. 844, 851
(1989) (internal quotation marks omitted). 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." Swarts v. Hammer, 194 U.S. 441, 444 (1904). I
therefore believe it proper to construe section 1146(c) to include only
postconfirmation transfers, not because the section's language is
patent, but because concerns of federalism require the narrower inter-
pretation.
28