FILED 1 NOT FOR PUBLICATION APR 26 2017
2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NV-16-1173-KuLJu ) 6 CM REED ALMEDA 1-3062, LLC, ) Bk. No. 2:13-bk-19117 ) 7 Debtor. ) _______________________________) 8 ) CM REED ALMEDA 1-3062, LLC, ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) HARRIS COUNTY, ) 12 ) Appellee. ) 13 _______________________________) 14 Submitted Without Oral Argument on February 24, 2017 15 Filed – April 26, 2017 16 Appeal from the United States Bankruptcy Court 17 for the District of Nevada 18 Honorable Gary A. Spraker, Bankruptcy Judge, Presiding 19 Appearances: Gerald M. Gordon and Mark M. Weisenmiller of Garman Turner Gordon LLP and Douglas S. Draper of 20 Heller, Draper, Patrick, Horn & Dabney, L.L.C. on brief for appellant CM Reed Almeda 1-3062, LLC; 21 Jeanette E. McPherson of Schwartzer & McPherson Law Firm and John P. Dillman of Linebarger Goggan 22 Blair & Sampson, LLP on brief for appellee Harris County. 23 24 Before: KURTZ, LAFFERTY and JURY, Bankruptcy Judges. 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8024-1. 1 INTRODUCTION 2 Chapter 111 debtor CM Reed Almeda 1-3062, LLC appeals from 3 an order denying its motion under § 505 to determine its ad 4 valorem property tax liability. With respect to property taxes 5 assessed between 2007 and 2009, the bankruptcy court held that 6 CM Reed Almeda lacked standing because it did not own the 7 property at the time the taxes were assessed. As for all 8 property taxes assessed in 2014 and before, the bankruptcy court 9 held that § 505 barred it from determining CM Reed Almeda’s tax 10 liability because the time to challenge those taxes had expired 11 under applicable nonbankruptcy law before CM Reed Almeda filed 12 its motion. Finally, concerning 2015 and 2016 taxes, the 13 bankruptcy court ruled that it would exercise its discretion to 14 abstain. 15 We agree with the bankruptcy court’s determination that 16 CM Reed Almeda’s request for a determination of its tax liability 17 for 2014, and all years prior, was time barred. In addition, we 18 hold that the bankruptcy court did not abuse its discretion in 19 abstaining from hearing and deciding the dispute over 2015 and 20 2016 taxes. 21 Therefore, we AFFIRM. 22 FACTS 23 CM Reed Almeda has not challenged the bankruptcy court’s 24 recitation of the basic underlying facts set forth in the court’s 25 1 26 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 27 all “Rule” references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All “Civil Rule” references are to 28 the Federal Rules of Civil Procedure.
2 1 memorandum of decision entered on May 31, 2016, so we have relied 2 on that recitation. 3 CM Reed Almeda filed its chapter 11 petition in 2013. Its 4 sole asset is roughly 16 acres of vacant land in Harris County, 5 Texas. The land formerly was used for oil and gas exploration, 6 but more recently it was platted for residential development. 7 The land’s former use resulted in environmental issues. 8 Additionally, numerous property transfers, encumbrances and 9 foreclosures clouded title. In 2011, Larry Ramming and Dick 10 Wheeler purportedly acquired the land via a foreclosure. 11 Thereafter, many tax notices were sent to Ramming and Wheeler as 12 the owners of record. 13 At the time of its 2013 bankruptcy filing, CM Reed Almeda 14 claimed ownership of the land. According to CM Reed Almeda, it 15 filed bankruptcy in order to take advantage of the Bankruptcy 16 Code provision enabling debtors to sell assets free and clear of 17 liens and other interests. CM Reed Almeda expected to clear 18 title to the land, through a bankruptcy sale. 19 Another issue CM Reed Almeda sought to address in the 20 bankruptcy case was its disputed tax liability to Harris County. 21 Harris County filed two proof of claims asserting secured and 22 priority tax claims.2 The first proof of claim was for 23 prepetition ad valorem real property taxes arising between 2007 24 25 2 Actually, the tax claims asserted by Harris County were an 26 aggregation of tax liability owed to a variety of city and county taxing authorities. For ease of reference and because the 27 identity of the specific taxing authorities is not relevant to our analysis or the resolution of this appeal, we collectively 28 refer to these taxing authorities as Harris County.
3 1 and 2013 in the aggregate amount of $556,275.07. Harris County 2 submitted over 400 pages of supporting documentation, consisting 3 of partial tax statements issued by the Harris County Tax 4 Assessor-Collector. The tax statements showed that the taxing 5 entities had assessed taxes against each subdivided lot rather 6 than against the land as a whole, and most of the statements 7 identified Wheeler and Ramming as the “certified owners” of the 8 land. None of them identified CM Reed Almeda as certified owner, 9 nor is there any indication in the proof of claim or the 10 supporting documentation as to whether or when CM Reed Almeda 11 received notice of the tax assessments. 12 Harris County’s second proof of claim was for postpetition 13 ad valorem real property taxes arising in 2014 and 2015 in the 14 aggregate amount of $111,492.52. The partial tax statements 15 submitted in support of Harris County’s amended postpetition 16 claim are similar to those submitted in support of Harris 17 County’s prepetition claim, inasmuch as they identify Wheeler and 18 Ramming as the “certified owners” of the property and none of 19 them identify CM Reed Almeda as the certified owner. 20 To challenge Harris County’s tax claims, CM Reed Almeda 21 filed a motion under § 505 asserting that taxes were improperly 22 assessed against its land and that it did not receive notice of 23 the taxes assessed. Harris County opposed the motion. Harris 24 County argued in relevant part that CM Reed Almeda lacked 25 standing to challenge the taxes imposed for 2007 through 2009 26 because CM Reed Almeda did not own the land at the time. Harris 27 County also argued that the time period for disputing the tax 28 liability had expired and alternately argued that the bankruptcy
4 1 court should abstain from hearing the tax dispute. 2 After holding a hearing on CM Reed Almeda’s motion, the 3 bankruptcy court issued a memorandum decision, which held in part 4 that the court lacked authority under § 505(a) to determine 5 CM Reed Almeda’s tax liability and abstained in part from 6 resolving the dispute. For taxes incurred between 2007 and 2009, 7 the bankruptcy court reasoned that CM Reed Almeda lacked standing 8 under Texas law to challenge those taxes because CM Reed Almeda 9 did not own the land at the time the taxes were incurred. 10 For taxes incurred between 2010 and 2014, the bankruptcy 11 court ruled that CM Reed Almeda’s challenge was untimely. The 12 court pointed out that § 505(a)(2)(C) prohibits the bankruptcy 13 court from considering the debtor’s challenge to ad valorem 14 property taxes if the applicable period under nonbankruptcy law 15 for challenging the taxes had expired.3 The court interpreted 16 state tax law in concluding that CM Reed Almeda was time barred 17 both from directly challenging the taxes assessed and from 18 complaining that it did not receive notice of the taxes assessed. 19 For taxes incurred in 2015 and 2016, the bankruptcy court 20 concluded that it would abstain. The court set forth two 21 alternate abstention tests for resolving discretionary abstention 22 3 23 The bankruptcy court further ruled that the critical date for purposes of determining timeliness was the date CM Reed 24 Almeda filed its § 505 motion and that § 108(a) did not apply to extend any state-law-imposed deadlines for disputing ad valorem 25 property tax liability. CM Reed Almeda has not challenged these 26 rulings on appeal, so we decline to discuss them further. See Christian Legal Soc’y v. Wu, 626 F.3d 483, 487–88 (9th Cir. 2010) 27 (declining to address matters not specifically and distinctly discussed in the appellant’s opening brief); Brownfield v. City 28 of Yakima, 612 F.3d 1140, 1149 n.4 (9th Cir. 2010) (same).
5 1 issues: one that has been used outside the Ninth Circuit 2 specifically to resolve the question of whether the bankruptcy 3 court should exercise its discretion under § 505 to determine the 4 debtor’s tax liability and another that is the prevailing Ninth 5 Circuit test used to resolve discretionary abstention questions 6 arising under 28 U.S.C. § 1334(c)(1). Under either test, the 7 court determined discretionary abstention was appropriate.4 8 The bankruptcy court entered its order denying CM Reed 9 Almeda’s § 505 motion on May 31, 2016, and CM Reed Almeda timely 10 appealed. 11 JURISDICTION 12 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 13 §§ 1334 and 157(b)(2)(A), (B) and (O), and we have jurisdiction 14 under 28 U.S.C. § 158. 15 ISSUES 16 1. Was CM Reed Almeda’s § 505 motion untimely? 17 2. Did the bankruptcy court abuse its discretion in deciding to 18 abstain from determining CM Reed Almeda’s tax liability for 19 2015 and 2016? 20 STANDARDS OF REVIEW 21 The bankruptcy court’s determination that CM Reed Almeda’s 22 § 505 motion should be denied as untimely turned on its 23 interpretation and application of the Bankruptcy Code and Texas 24 law. We review these matters de novo. Rund v. Bank of Am. Corp. 25 26 4 The bankruptcy court further stated that, to the extent its 27 rulings regarding the taxes incurred between 2007 and 2014 turned out to be incorrect, its abstention ruling would apply to those 28 taxes as well.
6 1 (In re EPD Inv. Co., LLC), 523 B.R. 680, 684 (9th Cir. BAP 2015). 2 The bankruptcy court’s permissive abstention ruling is 3 reviewed for an abuse of discretion. In re Bankr. Petition 4 Preparers who are not Certified Pursuant to Requirements of Ariz. 5 Sup. Ct., 307 B.R. 134, 140 (9th Cir. BAP 2004). A bankruptcy 6 court abuses its discretion if it fails to identify or apply the 7 correct legal rule or its application of the correct legal rule 8 was “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without ‘support 9 in inferences that may be drawn from the facts in the record.’” 10 Yellow Express, LLC v. Dingley (In re Dingley), 514 B.R. 591, 596 11 (9th Cir. BAP 2014) (citing United States v. Hinkson, 585 F.3d 12 1247, 1262–63 (9th Cir. 2009) (en banc)). 13 Similarly, findings of fact made in the course of the court 14 exercising its discretion are reviewed under the clearly 15 erroneous standard and are not clearly erroneous unless they were 16 illogical, implausible or without support in the record. 17 Hinkson, 585 F.3d at 1261-62 & n.21. 18 DISCUSSION 19 A. Timeliness Issue 20 The Bankruptcy Code authorizes the bankruptcy court to 21 determine the debtor’s liability for taxes unless they were 22 adjudicated prepetition “by a judicial or administrative tribunal 23 of competent jurisdiction.” § 505(a)(1), (a)(2). With respect 24 to ad valorem property taxes, the Code restricts the bankruptcy 25 court’s authority by prohibiting the court from determining the 26 debtor’s tax liability when the period “under applicable 27 nonbankruptcy law” for challenging the amount of taxes has 28 expired. § 505(a)(2)(C).
7 1 In turn, Texas law generally permits property owners to 2 protest ad valorem property tax assessments until the later of 3 June 1 of the tax year in question or until 30 days after the 4 date notice was delivered to the property owner, whichever is 5 later. Texas Tax Code § 41.44(a)(2). More importantly for this 6 appeal, a tax protest based on a failure to receive proper notice 7 must be filed no later than the date the taxes become delinquent. 8 Texas Tax Code § 41.44(c); see also Heritage Operating, L.P. v. 9 Barbers Hill Indep. Sch. Dist., 496 S.W.3d 318, 325 (Tex. Ct. 10 App. 2016) (“A property owner is not entitled to have the 11 lack-of-notice protest heard and determined unless, before the 12 taxes become delinquent, the property owner files the notice of 13 protest . . . .”). While taxes generally become delinquent on 14 February 1 of the year following the year in which the taxes were 15 imposed, Texas Tax Code § 31.02(a), there is a special, extended 16 delinquency date for purposes of a notice-based tax protest: 17 . . . a property owner who files a [notice- based] protest under Section 41.411 on or 18 after the date the taxes on the property to which the notice applies become delinquent, 19 but not later than the 125th day after the property owner, in the protest filed, claims 20 to have first received written notice of the taxes in question, is entitled to a hearing 21 solely on the issue of whether one or more taxing units timely delivered a tax bill. If 22 at the hearing the appraisal review board determines that all of the taxing units 23 failed to timely deliver a tax bill, the board shall determine the date on which at 24 least one taxing unit first delivered written notice of the taxes in question, and for the 25 purposes of this section the delinquency date is postponed to the 125th day after that 26 date. 27 Texas Tax Code § 41.44(c-3) (emphasis added). 28 The bankruptcy court, here, effectively determined that,
8 1 pursuant to § 505(a)(2)(C), it lacked authority to determine 2 CM Reed Almeda’s liability to Harris County for tax years 2007 3 through 2014 because CM Reed Almeda did not timely challenge 4 these tax assessments and did not timely complain of the absence 5 of written notice of these taxes.5 In relevant part, the 6 bankruptcy court explained that Texas Tax Code § 41.411 is the 7 exclusive remedy for contesting the notice given of tax 8 assessments and that, under Texas Tax Code § 41.44(c-3), Harris 9 County’s proofs of claim had been sufficient notice of the taxes 10 to cause the 125-day extension period to begin to run. Because 11 CM Reed Almeda’s § 505 motion was not filed within 125 days of 12 the filing of Harris County’s proofs of claim, the § 505 motion 13 was time-barred for the 2014 tax year and for all tax years prior 14 15 5 For the tax years 2007, 2008 and 2009, the bankruptcy court 16 actually ruled that CM Reed Almeda lacked standing to dispute these taxes because it did not own the land at the time the taxes 17 were imposed. Citing Houston Land & Cattle Co. v. Harris Cnty. Appraisal Dist., 104 S.W.3d 622, 625 & n.2 (Tex. Ct. App. 2003), 18 the bankruptcy court held that only the owner of the property at 19 the time the assessment was made has standing to contest either that assessment or an alleged lack of notice of that assessment. 20 Read as a whole, Houston Land & Cattle Co. arguably might be better interpreted as a forfeiture case rather than a standing 21 case. That is to say, because the prior owners had forfeited any rights to contest the appraisals or lack of notice thereof, the 22 prior owners had no surviving challenge rights that they could 23 have passed to a successor owner. Id. at 623-25.
24 In any event, CM Reed Almeda has not challenged the bankruptcy court’s “standing” holding on appeal. Moreover, even 25 if CM Reed Almeda had challenged this holding, it would be 26 unnecessary for us to review it because the bankruptcy court’s timeliness ruling adequately supports its denial of the § 505 27 motion for the 2007, 2008 and 2009 tax years. We can affirm on any ground supported by the record. Fresno Motors, LLC v. 28 Mercedes Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 2014).
9 1 to 2014. 2 On appeal, CM Reed Almeda has not disputed that, before it 3 filed its § 505 motion, the time had expired directly to 4 challenge the 2007 through 2014 tax assessments. Nor has CM Reed 5 Almeda challenged on appeal the bankruptcy court’s determination 6 that Texas Tax Code § 41.411 is the exclusive remedy available to 7 contest notice of taxes assessed. See Heritage Operating, L.P., 8 496 S.W.3d at 323 (citing Texas Tax Code § 42.09 and stating 9 “[a]ny ground of protest that the Code authorizes can be 10 adjudicated only by the procedures it prescribes”); Houston Land 11 & Cattle Co., 104 S.W.3d at 624 (citing Texas Tax Code § 42.09 12 and stating “[t]he Tax Code provides the exclusive remedy for 13 adjudication of property tax protests.”). Nor has CM Reed Almeda 14 argued that its alleged failure to receive notice: (1) affected 15 the validity of the tax assessments or the underlying appraisals, 16 or (2) absolved it of an affirmative duty to contest the tax 17 assessments or the underlying appraisals. See Denton Cent. 18 Appraisal v. CIT Leasing, 115 S.W.3d 261, 265-66 (Tex. Ct. App. 19 2003); see also Texas Tax Code § 25.19(d). 20 CM Reed Almeda specifically and distinctly argues only one 21 timeliness issue in its appeal brief – that the bankruptcy court 22 erred when it held that Harris County’s proofs of claim 23 constituted sufficient notice of the taxes assessed to trigger 24 the 125-day extension period under Texas Tax Code § 41.44(c-3). 25 Without citing any authority in support, CM Reed Almeda argues 26 that the type of “written notice” referenced in Texas Tax Code 27 § 41.44(c-3) is the same type of “written notice” required under 28 Texas Tax Code § 25.19, which specifies the type of notice the
10 1 chief appraiser must give property owners when (inter alia) the 2 appraised value of the taxed property increases from the prior 3 year. Texas Tax Code § 25.19(a). Such notice generally must 4 include: 5 (1) a list of the taxing units in which the property is taxable; 6 (2) the appraised value of the property in the 7 preceding year; 8 (3) the taxable value of the property in the preceding year for each taxing unit taxing the property; 9 (4) the appraised value of the property for the current 10 year, the kind and amount of each exemption and partial exemption, if any, approved for the property for the 11 current year and for the preceding year, and, if an exemption or partial exemption that was approved for 12 the preceding year was canceled or reduced for the current year, the amount of the exemption or partial 13 exemption canceled or reduced; 14 (5) if the appraised value is greater than it was in the preceding year, the amount of tax that would be 15 imposed on the property on the basis of the tax rate for the preceding year; 16 (6) in italic typeface, the following statement: “The 17 Texas Legislature does not set the amount of your local taxes. Your property tax burden is decided by your 18 locally elected officials, and all inquiries concerning your taxes should be directed to those officials”; 19 (7) a detailed explanation of the time and procedure 20 for protesting the value; 21 (8) the date and place the appraisal review board will begin hearing protests; and 22 (9) a brief explanation that the governing body of each 23 taxing unit decides whether or not taxes on the property will increase and the appraisal district only 24 determines the value of the property. 25 Texas Tax Code § 25.19(b). 26 However, nothing on the face of Texas Tax Code § 41.44(c-3) 27 or in the context in which it uses the term “written notice” 28 supports CM Reed Almeda’s assertion that the two Texas Tax Code
11 1 statutes require the same type of notice. To the contrary, Texas 2 Tax Code § 41.44(c-3) was drafted to address a specific, narrow 3 due process defect in the prior version of the Texas Tax Code 4 that sometimes left some property owners without any remedy when 5 the property owner received no notice of the taxes assessed 6 before they became delinquent. See Heritage Operating, L.P., 7 496 S.W.3d at 325 (citing Indus. Commc’ns, Inc. v. Ward Cty. 8 Appraisal Dist., 296 S.W.3d 707, 715–17 (Tex. Ct. App. 2009)). 9 Under Texas law, “due process is satisfied if the taxpayer is 10 given an opportunity to be heard before some assessment board at 11 some stage of the proceedings.” Denton Cent. Appraisal Dist., 12 115 S.W.3d at 266. Because this due process standard sets a 13 relatively low bar for notice requirement purposes, we are not 14 persuaded that the detailed notice requirements of Texas Tax Code 15 § 25.19(b) apply to the notice requirement set forth in Texas Tax 16 Code § 41.44(c-3). Cf. Rio Valley, LLC v. City of El Paso, 17 441 S.W.3d 482, 492 (Tex. Ct. App. 2014) (citation served in 18 delinquent tax suit was sufficient to constitute “written notice 19 of the taxes” within the meaning of Texas Tax Code § 41.44(c-3)). 20 Harris County’s proofs of claim gave CM Reed Almeda notice 21 of the taxes assessed for each of the tax years between 2007 and 22 2014. With respect to tax years 2007 through 2013, Harris 23 County’s proof of claim no. 1-1 gave CM Reed Almeda notice of the 24 taxes nearly two years before CM Reed Almeda filed its § 505 25 motion. As for the 2014 taxes, Harris County’s proof of claim 26 no. 3-1 gave CM Reed Almeda notice of the taxes roughly 150 days 27 before CM Reed Almeda filed its § 505 motion. 28 We need not decide precisely what type of notice is
12 1 sufficient in every instance to satisfy the due process concerns 2 underlying Texas Tax Code § 41.44(c-3)’s 125-day window. It 3 suffices to say here that Harris County’s proofs of claim were 4 sufficient to trigger this 125-day notice period, which expired 5 before CM Reed Almeda filed its § 505 motion. 6 Therefore, the bankruptcy court correctly held that CM Reed 7 Almeda’s notice-based tax protest for taxes assessed in 2014 and 8 before was untimely and correctly concluded that it had no 9 authority under § 505 to determine CM Reed Almeda’s tax liability 10 for those tax years. 11 B. Abstention Issue 12 For the 2015 and 2016 tax years, the delinquency date for 13 payment of taxes had not yet occurred, so the period for 14 protesting 2015 and 2016 taxes had not yet closed at the time 15 CM Reed Almeda filed its § 505 motion. Thus, relief under § 505 16 was not time barred for the 2015 and 2016 tax years. However, 17 the bankruptcy court relied upon the discretionary abstention 18 doctrine to determine that it would abstain from determining 19 CM Reed Almeda’s tax liability for the 2015 and 2016 tax years. 20 The bankruptcy court applied two different discretionary 21 abstention tests and held that, under either test, discretionary 22 abstention was appropriate. The first test has been used outside 23 the Ninth Circuit specifically to resolve the question of whether 24 the bankruptcy court should exercise its discretion under § 505 25 to determine the debtor’s tax liability.6 The second test – 26 6 27 As articulated by the bankruptcy court the factors in the first test are: 28 (continued...)
13 1 enunciated in Christensen v. Tucson Estates, Inc. (In re Tucson 2 Estates, Inc.), 912 F.2d 1162, 1167 (9th Cir. 1990) – is used in 3 the Ninth Circuit and elsewhere to resolve discretionary 4 abstention questions arising under § 1334(c)(1). Neither party 5 on appeal disputes the correctness of applying the Tucson Estates 6 test in determining whether a bankruptcy court should hear and 7 decide a § 505 motion. Furthermore, virtually all of the factors 8 in the first test are subsumed within the Tucson Estates test. 9 Therefore, we will assume without deciding that application of 10 the Tucson Estates test is the correct means for determining 11 whether a bankruptcy court should abstain from hearing and 12 deciding a motion under § 505. 13 The Tucson Estates test sets forth the following factors for 14 consideration: 15 (1) the effect or lack thereof on the efficient administration of the estate if a Court recommends 16 abstention, (2) the extent to which state law issues predominate over bankruptcy issues, (3) the difficulty 17 or unsettled nature of the applicable law, (4) the 18 6 19 (...continued) (1) the complexity of the tax issues to be decided; 20 (2) the need to administer the bankruptcy case in an 21 orderly and efficient manner; 22 (3) the burden on the bankruptcy court’s docket; 23 (4) the length of time required for trial and decision; 24 (5) the asset and liability structure of the debtor; 25 and 26 (6) the prejudice to the taxing authority. 27 Mem Dec. (May 31, 206) at 15:16-16:4 (citing IRS v. Luongo 28 (In re Luongo), 259 F.3d 323, 330 (5th Cir. 2001)).
14 1 presence of a related proceeding commenced in state court or other nonbankruptcy court, (5) the 2 jurisdictional basis, if any, other than 28 U.S.C. § 1334, (6) the degree of relatedness or remoteness of 3 the proceeding to the main bankruptcy case, (7) the substance rather than form of an asserted “core” 4 proceeding, (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments 5 to be entered in state court with enforcement left to the bankruptcy court, (9) the burden of [the bankruptcy 6 court’s] docket, (10) the likelihood that the commencement of the proceeding in bankruptcy court 7 involves forum shopping by one of the parties, (11) the existence of a right to a jury trial, and (12) the 8 presence in the proceeding of nondebtor parties. 9 In re Tucson Estates, 912 F.2d at 1167 (citing In re Republic 10 Reader’s Serv., Inc., 81 B.R. 422, 429 (Bankr. S.D. Tex. 1987)). 11 1. Tucson Estates Factors 1 & 6 – Effect of Abstention on 12 Case Administration and Relationship Between Main 13 Bankruptcy Case and Proceeding in Question 14 The bankruptcy court opined that abstention would not 15 negatively impact administration of CM Reed Almeda’s bankruptcy 16 case. At the time of the bankruptcy court’s decision, 17 administration of CM Reed Almeda’s single-asset bankruptcy estate 18 hinged on a sale of the land, and no sale had yet been 19 consummated. More importantly, the court noted that the debtor 20 “has always contemplated” a liquidating plan to resolve its 21 chapter 11 case and that “the debtor has no general unsecured 22 creditors” who would be inconvenienced by any delay in 23 distribution of any future sale proceeds pending resolution of 24 the parties’ surviving tax disputes. The court also found 25 telling the fact that CM Reed Almeda had made no effort to seek 26 any determination of any of its tax liability until roughly two 27 years after the bankruptcy case was commenced and Harris County 28 filed its proof of claim covering tax years 2007 through 2013.
15 1 On appeal, CM Reed Almeda essentially contends that the 2 estate’s inability to pay any creditors until the tax dispute 3 with Harris County is resolved is sufficient impact on 4 administration of the estate, and a sufficient relationship to 5 the main case, to militate against abstention. But CM Reed 6 Almeda: (1) did not challenge any of the facts the bankruptcy 7 court relied upon in assessing the relationship and impact 8 factors; (2) did not challenge any of the inferences the 9 bankruptcy court drew from those facts; and (3) did not challenge 10 the court’s application of those facts in weighing the first and 11 sixth Tucson Estates factors. Simply put, CM Reed Almeda has not 12 demonstrated that the bankruptcy court’s application of the 13 correct legal standard “was illogical, implausible, or without 14 support in inferences that may be drawn from the facts in the 15 record.” Hinkson, 585 F.3d at 1262–63. Nor is any such 16 misapplication evident to us. 17 2. Tucson Estates Factors 2 & 3 – The Predominance of 18 State Law Issues and their Complexity or Difficulty 19 As the bankruptcy court put it, “the [§] 505 motion involves 20 only state law issues,” and “[r]esolution of those issues is more 21 complex than asserted by the debtor.” The bankruptcy court 22 explained that contesting the assessed value of the land and 23 determining the extent to which anticipated remediation costs 24 could be taken into account would be governed by state law and 25 that the parties appeared to disagree regarding these issues 26 given the positions they asserted in their moving and opposition 27 papers. 28 On appeal, CM Reed Almeda posits that the legal issues the
16 1 bankruptcy court expressed concern over were not really in 2 dispute. Instead, it contended that the parties’ dispute focused 3 exclusively on a factual issue: the prospective costs of 4 remediation. CM Reed Almeda has not explained why the bankruptcy 5 court’s perception of the anticipated litigation was incorrect or 6 even why its own perception might be more correct than the 7 bankruptcy court’s on this issue. Put another way, CM Reed 8 Almeda has not demonstrated that the bankruptcy court’s 9 assessment of Tucson Estates Factors 2 & 3 was illogical, 10 implausible, or without support in the record. 11 3. Tucson Estates Factor 4 – Pending Related Proceeding 12 Before a State Court or Tribunal 13 The bankruptcy court conceded that there was no state 14 proceeding pending to address CM Reed Almeda’s disputed tax 15 liability, but the court gave this factor little weight. For the 16 tax years 2015 and 2016, the bankruptcy court pointed out that CM 17 Reed Almeda could avail itself in Texas of the procedures and 18 grounds for contesting Harris County’s tax assessments permitted 19 under Texas law and that there was no legitimate need to 20 substitute a Nevada bankruptcy court for the Texas tribunals 21 available to address the disputed tax liability. 22 Citing Security Farms v. Int’l Bhd. of Teamsters, 124 F.3d 23 999, 1009 (9th Cir. 1997), CM Reed Almeda argues on appeal that 24 the absence of a pending state proceeding is fatal to the 25 bankruptcy court’s discretionary abstention ruling. But CM Reed 26 Almeda’s reliance on Security Farms is misplaced. The absence of 27 a pending state proceeding is not dispositive here. If we were 28 to hold to the contrary – that the absence of a pending state
17 1 proceeding is dispositive – our holding would be in conflict with 2 In re Tucson Estates, 912 F.2d at 1167, and Eastport Assocs. v. 3 City of Los Angeles (In re Eastport Assocs.), 935 F.2d 1071, 4 1075-76 (9th Cir. 1991). Both Tucson Estates and Eastport 5 Assocs. identified “the presence of a related proceeding 6 commenced in state court or other nonbankruptcy court” as one of 7 a dozen factors to weigh in deciding whether to apply 8 discretionary abstention. If the presence of a state court 9 proceeding was a mandatory requirement, both Tucson Estates and 10 Eastport Assocs. would have specified that the presence of a 11 state proceeding was an absolute prerequisite, rather than merely 12 identifying it as one of twelve factors the bankruptcy court 13 needed to consider and weigh. 14 Our analysis is supported by Schulman v. California 15 (In re Lazar), 237 F.3d 967, 981-82 (9th Cir. 2001). Lazar, like 16 Security Farms, involved an action removed from state court to 17 the bankruptcy court. Lazar followed Security Farms and 18 generally held that, as a consequence of the removal, no state 19 court action thereafter existed, so both 28 U.S.C. § 1334(c)(1) 20 permissive abstention and 28 U.S.C. § 1334(c)(2) mandatory 21 abstention were unavailable. Lazar, 237 F.3d at 981-82. 22 In a footnote, Lazar acknowledged Eastport Assocs. and 23 pointed out that Eastport Assocs. applied the Tucson Estates 24 twelve-factor test for determining the propriety of permissive 25 abstention even though no state proceeding had been commenced. 26 Lazar, 237 F.3d at 982 n.17. Instead of treating Security Farms 27 and Eastport Assocs. as being in conflict, Lazar harmonized the 28 two by effectively limiting its holding (and Security Farms’
18 1 holding) to actions removed to the bankruptcy court under 2 28 U.S.C. § 1452(a). Lazar, 237 F.3d at 982 n.17. 3 Here, Security Farms does not apply because the action in 4 the bankruptcy court was not a removed state court action. Thus, 5 we reject CM Reed Almeda’s argument that the bankruptcy court’s 6 grant of discretionary abstention was fatally defective in the 7 absence of a pending state action on the parties’ tax dispute.7 8 4. Tucson Estates Factor 5 – Alternate Bases For Federal 9 Jurisdiction 10 The bankruptcy court stated that § 505 was jurisdictional in 11 nature and provided an alternate ground for federal jurisdiction 12 in addition to 28 U.S.C. § 1334(b). See generally Mantz v. Cal. 13 State Bd. of Equalization (In re Mantz), 343 F.3d 1207, 1211 (9th 14 Cir. 2003) (describing § 505 as a jurisdictional grant of 15 authority). Nonetheless, the bankruptcy court concluded that, to 16 the extent the existence of an alternate ground for federal 17 jurisdiction ordinarily might weigh against abstention, this 18 weight was offset by the plain language of § 505, which makes the 19 exercise of jurisdiction under § 505 permissive rather than 20 mandatory. 21 22 7 This Panel previously held in In re Bankruptcy Petition 23 Preparers Who Are Not Certified Pursuant to Requirements of Arizona Supreme Court, 307 B.R. at 140, that Security Farms’ 24 holding only applied to mandatory abstention requests. It is difficult to reconcile Bankruptcy Petition Preparers with Lazar, 25 which held that both permissive and mandatory abstention 26 doctrines are unavailable in actions removed from state court. Because we hold that Lazar supports the bankruptcy court’s 27 application of discretionary abstention, we need not further address here the apparent tension between Lazar and Bankruptcy 28 Petition Preparers.
19 1 On appeal, CM Reed Almeda completely ignores the bankruptcy 2 court’s Tucson Estates Factor 5 analysis and merely states “No 3 other basis for jurisdiction exists.” This statement is wholly 4 unsupported and does not meaningfully challenge the bankruptcy 5 court’s analysis. Thus, CM Reed Almeda has not demonstrated that 6 the bankruptcy court’s assessment of Tucson Estates Factor 5 was 7 illogical, implausible, or without support in the record. 8 5. Tucson Estates Factors 7 & 8 – Substance Rather than 9 Form of “Core” Proceeding and Feasibility of Severing 10 State Law Claims From Core Bankruptcy Matters 11 The bankruptcy court did not say much about these two 12 factors, except to state that “[t]here are no ‘core’ bankruptcy 13 matters to be severed.” We do not agree with this statement. 14 When, as here, tax liability has been asserted in proofs of claim 15 filed in the bankruptcy case, a § 505 motion seeking a 16 determination of the debtor’s tax liability falls within the 17 ambit of 28 U.S.C. § 157(b)(2)(B), which identifies as “core” the 18 allowance or disallowance of claims against the estate. 19 Moreover, the motion “arises under Title 11” because § 505 in 20 essence creates a “cause of action” for the determination of tax 21 liability. 28 U.S.C. § 157(a); see also Wilshire Courtyard v. 22 Cal. Franchise Tax Bd. (In re Wilshire Courtyard), 729 F.3d 1279, 23 1285 (9th Cir. 2013) (“Proceedings ‘arising under’ title 11 24 involve causes of action created or determined by a statutory 25 provision of that title.”). 26 Nonetheless, even if this tax dispute qualifies as a core 27 proceeding, this does not necessarily mean that these two Tucson 28 Estates factors militate against abstention. To the contrary,
20 1 the seventh Tucson Estates factor requires us to focus on the 2 substance of the “core” proceeding. Here, that substance is a 3 dispute over taxes arising under state law, which dispute could 4 and would arise regardless of the intervening bankruptcy case. 5 And the eighth Tucson Estates factor requires us to focus on the 6 existence of state law claims and the feasibility of severing 7 them “from core bankruptcy matters to allow judgments to be 8 entered in state court with enforcement left to the bankruptcy 9 court.” 10 According to CM Reed Almeda, the absence of a pending state 11 court action renders it infeasible to sever out the state law tax 12 claims. We disagree. As the bankruptcy court pointed out, Texas 13 has an entire system of tribunals and a comprehensive statutory 14 scheme for resolving disputes concerning ad valorem property 15 taxes assessed under Texas law. CM Reed Almeda has not offered 16 any reason why the Texas tribunals are incapable of effectively 17 and efficiently determining CM Reed Almeda’s tax liability for 18 2015 and 2016. In fact, the only apparent impediment to 19 determining this liability in those tribunals is CM Reed Almeda’s 20 failure and refusal to bring its tax dispute before those 21 tribunals. 22 In short, even though CM Reed Almeda’s § 505 motion 23 qualified as a core proceeding, the seventh and eighth Tucson 24 Estates factors still militated in favor of abstention. 25 6. Tucson Estates Factor 9 – Burden on the Bankruptcy 26 Court’s Docket 27 The bankruptcy court did not distinctly articulate the 28 extent of the burden on its docket that would result from its
21 1 hearing and deciding the § 505 motion. Even so, the bankruptcy 2 court made a number of observations relevant to this factor. The 3 court observed that “an evidentiary hearing would be required if 4 this court were to hear the 505 Motion,” and that “[g]iven this 5 court’s other commitments, there is no reason to believe that it 6 could hear and determine the issues the debtor has raised more 7 efficiently than the state forum.” The court further observed 8 that CM Reed Almeda had offered no explanation why the court 9 should need to “start from scratch” in analyzing Texas law 10 governing the assessment of property taxes and disputes regarding 11 those assessments, “when there is a more efficient tribunal that 12 can determine the valuation issues under applicable state law.” 13 In effect, the bankruptcy court’s observations amount to a 14 finding that hearing the § 505 motion would constitute an 15 unnecessary burden on its docket. 16 Instead of addressing this burden, CM Reed Almeda on appeal 17 has merely pointed out that bankruptcy courts frequently address 18 valuation disputes and has contended that its tax dispute with 19 Harris County is nothing more than that. CM Reed Almeda’s 20 appellate argument completely ignored the bankruptcy court’s 21 concerns that the tax dispute is more complex than CM Reed Almeda 22 has acknowledged and that the state tax tribunals are better 23 situated to resolve the dispute more efficiently. Once again, 24 CM Reed Almeda has not demonstrated that the court’s assessment 25 of the factor in question was illogical, implausible, or without 26 support in the record. 27 7. Tucson Estates Factor 10 – Forum Shopping Concerns 28 The bankruptcy court stated that it had developed a “strong
22 1 sense” of forum shopping as a result of CM Reed Almeda’s conduct, 2 particularly its delay in contesting the disputed tax 3 assessments. In essence, the court reasoned that CM Reed 4 Almeda’s lack of notice argument did not credibly explain the 5 extent of the delay; rather, the court inferred from CM Reed 6 Almeda’s conduct an intent to delay having to pay the tax 7 liability for as long as possible, which also could explain why 8 CM Reed Almeda was insistent that the bankruptcy court should 9 hear and decide the tax dispute. 10 On appeal, CM Reed Almeda focuses on a different set of 11 facts and attempts to draw from those facts an inference that 12 Harris County is forum shopping. CM Reed Almeda ignores the 13 facts relied upon by the court and the inference of forum 14 shopping the court drew from those facts. Yet again, CM Reed 15 Almeda has not demonstrated that the court’s assessment of this 16 factor was illogical, implausible, or without support in the 17 record. 18 8. Tucson Estates Factors 11 & 12 – Jury Trial Rights and 19 Presence of Non-Debtor Parties 20 The bankruptcy court effectively found that these two 21 factors were neutral – that CM Reed Almeda had no jury trial 22 right and that, regardless of whether additional government 23 entities needed to be added to the proceeding as necessary 24 parties, the other Tucson Estates factors justified the court’s 25 abstention. 26 At bottom, CM Reed Almeda has done virtually nothing on 27 appeal to persuade us that the bankruptcy court’s application of 28 the Tucson Estates factors “was illogical, implausible, or
23 1 without support in inferences that may be drawn from the facts in 2 the record.” Hinkson, 585 F.3d at 1262–63. Nor is any such 3 misapplication evident to us. Accordingly, the bankruptcy court 4 did not abuse its discretion when it decided to abstain from 5 hearing and deciding the tax dispute with respect to the 2015 and 6 2016 tax years. 7 9. CM Reed Almeda’s Other Abstention-Related Arguments 8 There are only two other issues we need to address. First, 9 CM Reed Almeda maintains that Harris County forfeited the 10 abstention issue by filing proofs of claim. CM Reed Almeda has 11 not supported this novel argument with any legal authority, nor 12 are we aware of any that would support it. In fact, the notion 13 that the filing of proofs of claim could strip the bankruptcy 14 court of its discretion to abstain from hearing a dispute 15 relating to those claims is wholly inconsistent with Tucson 16 Estates and its progeny. 17 Second, CM Reed Almeda argues that, if abstention were 18 appropriate with respect to the 2015 and 2016 tax years, it also 19 should have been appropriate for the 2007 through 2014 tax years. 20 This argument is nonsensical and ignores the fact that the 21 bankruptcy court was able to resolve the tax liability dispute 22 regarding the 2007 through 2014 tax years by considering the 23 discrete and relatively straightforward timeliness issue. In 24 contrast, the tax liability dispute regarding the 2015 and 2016 25 tax years could not so easily be resolved, and this distinction 26 in the complexity of the dispute was sufficient, in the 27 bankruptcy court’s eyes, to justify a different result on the 28 abstention issue. We cannot say that the bankruptcy court’s
24 1 justification for treating the 2007 through 2014 tax years 2 differently from the 2015 and 2016 tax years was illogical, 3 implausible or without support in the record. 4 CONCLUSION 5 For the reasons set forth above, the bankruptcy court’s 6 order denying CM Reed Almeda’s § 505 motion is AFFIRMED. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28