Florida Department of Revenue v. Piccadilly Cafeterias, Inc.

PETITIONER: Florida Department of Revenue
RESPONDENT: Piccadilly Cafeterias, Inc.
LOCATION: Earthquake Park

DOCKET NO.: 07-312
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Eleventh Circuit

CITATION: 554 US 33 (2008)
GRANTED: Dec 07, 2007
ARGUED: Mar 26, 2008
DECIDED: Jun 16, 2008

ADVOCATES:
G. Eric Brunstad, Jr. - on behalf of the Respondent
Petitioner Scott D Makar - on behalf of the Petitioner

Facts of the case

In 2003, Piccadilly Cafeterias filed a Chapter 11 Bankruptcy petition in federal court in Florida asking the bankruptcy court for permission to auction off its assets in order to fund a reorganization plan. Piccadilly sought a tax exemption under 11 U.S.C. 1146(c) which states that certain asset transfers "under a [confirmed Chapter 11] plan may not be taxed under any law imposing a stamp tax or similar tax." Florida vehemently opposed this exemption and sought to collect $32,000 in taxes from Piccadilly.

The bankruptcy court, the district court, and the U.S. Court of Appeals for the Eleventh Circuit all found in favor of Piccadilly, holding that 11 U.S.C. 1146(c) allowed courts to exempt from taxes pre-confirmation asset sales that were essential to the completion of a reorganization plan. In urging the Court to grant certiorari, Florida pointed to both Third and Fourth Circuit decisions holding that such pre-confirmation asset sales were subject to state taxation, while Piccadilly Cafeterias contended that these so-called "circuit splits" only involve a small handful of cases and require no resolution by the Court.

Question

Does 11 U.S.C. Section 1146(c), a provision of the Bankruptcy Code stating that certain asset transfers "under a [confirmed Chapter 11] plan may not be taxed under any law imposing a stamp tax or similar tax," prohibit states from imposing taxes on pre-confirmation asset sales that are essential to the completion of a reorganization plan?

Media for Florida Department of Revenue v. Piccadilly Cafeterias, Inc.

Audio Transcription for Oral Argument - March 26, 2008 in Florida Department of Revenue v. Piccadilly Cafeterias, Inc.

Audio Transcription for Opinion Announcement - June 16, 2008 in Florida Department of Revenue v. Piccadilly Cafeterias, Inc.

John G. Roberts, Jr.:

Justice Thomas has our opinion this morning in case 07-312, Florida Department of Revenue versus Piccadilly Cafeterias.

Clarence Thomas:

This case comes to us on a writ of certiorari to United States Court of Appeals for the Eleventh Circuit.

Respondent, Piccadilly Cafeterias declared bankruptcy under Chapter 11, but before Piccadilly submitted its Chapter 11 plan to the bankruptcy court, Piccadilly sought and received court authorization to sell substantially all of its assets, and was granted an exemption from state stamp tax pursuant to 11 U.S.C. Section 1146(a).

That Section provides a stamp tax exemption for any asset transfer, "Under a plan confirmed under Chapter 11 of the Bankruptcy Code.”

Piccadilly submitted and received court approval of its Chapter 11 plan but only after the sale of its assets had been taken place.

Petitioner, Florida Department of Revenue objected, arguing that the stamp taxes, it had assessed on certain of Piccadilly's transferred assets fell outside the Section 1146(a) exemption because at the time of the sale, the transfers at issued were not under a plan confirmed.

The District Court upheld the bankruptcy courts grant of the exemption and the Eleventh Circuit affirmed, holding that the Section 1146(a) exemption applies to pre-confirmation transfers necessary to the consummation of a plan that is eventually confirmed under Chapter 11, provided there is some nexus between such transfers and the plan.

In an opinion filed with the clerk today, we reversed the judgment of the Court of Appeals.

The most natural reading of Section 1146(a)'s text, the provisions placement within the Bankruptcy Code and applicable substantive cannons all lead to the same conclusion.

Section 1146(a) affords a stamp tax exemption only to transfers made pursuant to a Chapter 11 plan that has already been confirmed.

First to phrase, under a plan confirmed is most naturally read to mean that the plan must be confirmed at the time assets are sold and transferred under it.

Second, the natural reading is consistent with the provision’s placement in a subchapter entitled, “Post-confirmation matters.”

Finally, construing Section 1146(a) narrowly to apply only to post-confirmation transfers is compelled by the long standing cannon that courts should narrowly interpret an exemption from state taxation, that Congress has not clearly expressed.

In sum, because Section 1146(a) does not apply to pre-confirmation transfers, Piccadilly may not avoid Florida's stamp taxes by invoking back that provision.

Justice Breyer has filed a dissenting opinion in which Justice Stevens has joined.