Greater Southeast Community Hospital Cor and Doctors Community Healthcare Corporation

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
GREATER SOUTHEAST COMMUNITY
HOSPITAL CORP., I, et al.,
Debtor.
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Case No. 02-02250
(Chapter 11)
TENTATIVE DECISION RE OBJECTION TO LOS ANGELES TAX CLAIM
The court held a hearing on June 29, 2005 on the DCHC
Liquidating Trust’s Motion for Order Determining the Amount,
Classification and Allowance of Real Property Tax Claim of Los
Angeles County Tax Collector (“Los Angeles”). (Docket Entry No.
2551, filed May 25, 2005.) At that hearing the court addressed a
number of issues concerning the tax claims of Los Angeles. If
necessary, the Trust will have an opportunity to respond to the
views the court expressed. Out of fairness to Los Angeles, the
court believes that it should be aware of the positions the court
expressed:
It is hereby
ORDERED that the Order set forth below is
hereby signed as an order of the court to be entered
by the clerk.
Signed: July 06, 2005.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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1 However, FDIC v. County of Orange makes clear that
redemption penalties do not give rise to a lien.
2
1. The court opined that prepetition delinquency penalties
are a lien claim under California law, see FDIC v. County of
Orange, 262 F.3d 1014, 1017 (9th Cir. 2001) (“California’s
property tax statute requires that property taxes be paid by
November 1, and if they have not been paid by December 10,
‘thereafter a delinquent penalty of ten percent attaches to
them.’ Cal. Rev. & Tax Code § 2617. The property tax
delinquent penalties are subject to statutory liens. Id. §
2187.”). Accordingly, these penalties, to the extent they
arose before the petition, are secured under 11 U.S.C. §
506(a).1
2. The court also opined that prepetition penalties may not
be equitably subordinated. See United States v. Reorganized
CF & I Fabricators of Utah, Inc., 116 S. Ct. 2106 (1996);
United States v. Noland, 116 S. Ct. 1524 (1996).
3. In addition, the court opined that § 506(a) does not
impose a reasonableness limitation on penalties.
4. The court also opined that postpetition penalties are
not allowed as part of a secured claim under § 506(b), but
interest is if there is sufficient value in the property to
cover the accrual of postpetition interest. Although
Alberts asserted at the hearing that the confirmed plan
included no provision for postconfirmation interest, the
plan provided in § 4.5 for payment of the Allowed Other
Secured Claims (including Los Angeles’s) without freezing
the allowed amount of such claims as of the Effective Date
of the plan. Although a plan may indeed freeze the amount
of a claim as of the effective date of the plan (see 11
U.S.C. § 1129(b)(2)(A)(i)(II)), this plan did not do so: the
definition of Secured Claim in § 1.95 of the plan did not
purport to cut off the accrual of interest at the effective
date.
5. Finally, the court addressed the question of whether the
2002-2003 tax year taxes are obligations of the Liquidating
Trust or administrative expenses. The court noted that
signing the proposed order for the motion could present a
risk of inconsistent results for the creditor because the
Reorganized Debtors say that the taxes are not
administrative whereas the trustee says that they are. The
Trust has thus presented a scheduling order whereby both the
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2 That scheduling order also addresses the amount the trust
concedes are owed but for an 11 U.S.C. § 502(d) issue based on an
adversary proceeding, Adversary Proceeding No. 04-10252 pending
in this court, to avoid and recover $33,385.59 in prepetition
payments made to the County.
3
Trust and Reorganized Debtors will brief this issue at the
same time.2
[Signed and Dated Above]
Copies to:
Sam Alberts, Trustee; Ted A. Berkowitz, Esq.; Dennis Early, U.S.
Trustee; Andrew Troop, Esq.; Michael Bernstein, Esq.
(Counsel for REIT)
Elizabeth McDaniel
Los Angeles County Tax Collector
Property Tax Division
P.O. Box 54018
Los Angeles, CA 90054-0018
Bill Lockyer, Attorney General
Office of the Attorney General
1300 I St., Suite 17840
Sacramento, CA 95814
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