                                                                                                                           Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


11-6-2002

In Re:Venture Stores
Precedential or Non-Precedential: Non-Precedential

Docket No. 01-1923




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Recommended Citation
"In Re:Venture Stores " (2002). 2002 Decisions. Paper 707.
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                                                                             NOT PRECEDENTIAL

                              UNITED STATES COURT OF APPEALS
                                   FOR THE THIRD CIRCUIT

                                             ___________

                                             No. 01-1923
                                             ___________




                                  IN RE: VENTURE STORES, INC.,
                                                           Appellant


                     _______________________________________________

                            On Appeal from the United States District Court
                                    for the District of Delaware*
                               Bankruptcy No. 98-00101 (Chapter 11)
                                 (Honorable Roderick R. McKelvie)
                                      ___________________


                       Submitted Pursuant to Third Circuit LAR 34.1(a)
                                       July 12, 2002
        Before: SCIRICA and GREENBERG, Circuit Judges, and FULLAM, District Judge**

                                       (Filed November 6, 2002)




                                        __________________


  *
    The United States District Court for the District of Delaware sitting in bankruptcy
jurisdiction pursuant to 28 U.S.C. § 1334.
  **
    The Honorable John P. Fullam, United States District Judge for the Eastern District of
Pennsylvania, sitting by designation.
                                      OPINION OF THE COURT
                                        __________________

SCIRICA, Circuit Judge.

        This appeal arises from a district court order refusing to adjudicate Venture Stores's

11 U.S.C. § 505 claims for a refund of taxes paid to Dallas and Tarrant County (Texas)

taxing units. Venture contends it should be permitted to proceed with its claims even

though it did not properly request a refund under Texas state law. The District Court held

that it lacked jurisdiction because Venture had not properly requested a refund under

applicable state law as required by § 505(a)(2)(B) of the Bankruptcy Code. Venture sought

reconsideration of that order, which the District Court denied.

        We will affirm.

                                                    I.

        Debtor Venture Stores filed a voluntary petition for relief under Chapter 11 of the

Bankruptcy Code in January, 1998. Prior to the commencement of Venture's Chapter 11

proceeding, Dallas and Tarrant County taxing units appraised Venture's real and personal

property for ad valorem tax purposes for tax year 1995. Although Venture timely paid all

of the taxes levied by these taxing units, Venture moved for a determination of its 1995 tax

liability during its bankruptcy proceeding under 11 U.S.C. § 505. At no time prior to these

§ 505 motions–filed in the District Court on or about May 15, 2000–did Venture challenge

under state law the valuation of its personal and real property taxes for tax year 1995. In its




                                                    2
Section 505 motions, however, Venture moved for a reassessment of its property, which it

contends was overvalued for 1995 tax purposes.

          Venture argues that Texas state law has no application requirements for refunds and

that a refund should automatically occur upon judicial determination of the market value

and corresponding revaluation of tax due. The taxing units, on the other hand, argue that

Venture's timely payment of its 1995 taxes and failure to request a refund in compliance

with Texas state law deprived the District Court of jurisdiction to provide Venture with a

refund.

          Thus, the taxing units maintain the District Court properly denied Venture's § 505

motions for determination of its 1995 tax liability. In its order, the District Court found

that it lacked jurisdiction under § 505(a)(2)(B) because Venture had not properly requested

a refund in accordance with state law. Venture appeals.

                                                     II.

          Our review of the order is plenary. See In re Trans World Airlines, Inc., 145 F.3d

124, 131 (3d Cir. 1998). We review legal conclusions de novo and factual findings for

clear error. Id.; In re Custom Distribution Services, Inc., 224 F.3d 235, 239 (3d Cir. 2000).




                                                      3
                                                     III.

        We have jurisdiction under 28 U.S.C. § 158(d). The District Court, sitting in

bankruptcy, had jurisdiction under 28 U.S.C. §157(b)(1), because this was a core proceeding

arising under the Bankruptcy Code.

                                                     IV.

        At issue is whether a district court, sitting in bankruptcy, has the authority to

redetermine a debtor’s right to a tax refund under 11 U.S.C. § 505(a)(2)(B) where the refund

was not first requested in accordance with state refund procedures. Venture argues that §

505 empowered the District Court to redetermine Venture's 1995 tax liability without being

restricted by state law procedural requirements. According to Venture, time limits for

requesting a refund under Texas law are inapplicable and are not dispositive of the District

Court's jurisdiction to order a refund. The taxing units contend that § 505(a)(2)(B) barred

jurisdiction because Venture did not make a proper request for a tax refund under Texas

state law. We hold a debtor must properly and timely request a tax refund in accordance

with state law governing tax appeals in order for a bankruptcy court to have jurisdiction

under § 505(a)(2)(B).

        11 U.S.C. § 505(a) of the Bankruptcy Code grants broad jurisdiction to determine the

amount or legality of a debtor’s tax liability. E.g., In re Custom Distribution Services Inc.,

224 F.3d 235, 240-41 (3d Cir. 2000); Quattrone Accountants, Inc. v. I. R.S., 895 F.2d 921,

923 (3d Cir. 1990). Section 505(a) provides:




                                                      4
        (a)(1) Except as provided in paragraph (2) of this subsection, the court may
        determine the amount or legality of any tax, any fine or penalty relating to a
        tax, or any addition to tax, whether or not previously assessed, whether or not
        paid, and whether or not contested before and adjudicated by a judicial or
        administrative tribunal of competent jurisdiction.

This jurisdictional authority, however, is limited by § 505(a)(2)(B). In Re Luongo, 259 F.3d

323, 329 n.4 (5th Cir. 2001) (“Section 505(a)(2)(B), like § 505(a)(2)(A), limits the

jurisdictional grant in § 505(a)(1). Section 505(a)(1) grants the bankruptcy court

jurisdiction over any tax claim, including refund claims; § 505(a)(2)(B) then prescribes the

limits particular to the bankruptcy court’s ability to determine a refund.”). Section

505(a)(2)(B) provides:

           (2) The court may not so determine–
                (A) the amount or legality of a tax, fine, penalty, or addition to tax if such
                amount or legality was contested before and adjudicated by a judicial or
                administrative tribunal of competent jurisdiction before the commencement
                of the case under this title; or
                (B) any right of the estate to a tax refund, before the earlier of–
                        (i) 120 days after the trustee properly requests such refund from the
                        governmental unit from which such refund is claimed; or
                        (ii) a determination by such governmental unit of such request.

        Venture argues that the bankruptcy court's jurisdiction to order refunds should not be

restricted under § 505(a)(2)(B) because, although that section's legislative history indicates

consideration of a jurisdictional limitation, Congress declined to adopt any limiting

language in the final version of § 505(a)(2)(B). But we considered and rejected this

argument in In re Custom Distribution Services, 224 F.3d 235 (3rd Cir. 2000). In that case,

we examined the contours of a federal bankruptcy court’s jurisdiction under § 505(a)(2)(B).

Reviewing the legislative history of § 505, we concluded that the “properly requests”

                                                      5
language in § 505(a)(2)(B) limits a bankruptcy court’s jurisdiction to situations in which the

debtor has first complied with the relevant taxing authority’s procedures for requesting a

refund. Id. at 241 (explaining that § 505 made only “stylistic changes” to its precursor, 11

U.S.C. § 2a (2A), a section limiting jurisdiction to the “adjudication of unpaid taxes or of

refunds if the debtor was first refused a refund in a non-bankruptcy forum and the applicable

appeals period had not expired”). We held, “Section 505(a)(2)(B) prohibits the bankruptcy

court from adjudicating the right of an estate to a tax refund unless the trustee has first

requested a refund from the government authority administering the tax and was refused.”

Custom, 224 F.3d at 243 (quoting In re St. John’s Nursing Home, Inc., 154 B.R. 117, 120

(Bankr. D. Mass. 1994)).

        That holding is consistent with the overwhelming case authority interpreting §

505(a)(2)(B). Id. at 267-68; e.g., In re Cumberland Farms, Inc., 175 B.R. 138 (Bankr. D.

Mass. 1994) (holding that § 505(a)(2)(B) must be interpreted to prohibit adjudication by the

bankruptcy court of refund claims where the debtor paid the taxes, but did not contest them

in accordance with Massachusetts procedure); In re Constable Terminal Corp., 222 B.R.

734, 740 (Bankr. D. N.J. 1998); In re Penking Trust, 196 B.R. 389, 396 (Bankr. E.D. Tenn.

1996); In re EUA Power Corp., 184 B.R. 631, 636 (Bankr. D.N.H. 1995); In re St. John’s

Nursing Home, Inc., 154 B.R. 117, 120 (Bankr. D. Mass. 1993), aff’d 169 B.R. 795 (D.

Mass 1994); In re Graham, 981 F.2d 1135, 1138 (10th Cir. 1992)). Although Custom

addressed New Jersey rather than Texas state law, its holding applies here. The District

Court properly found–as we found with respect to New Jersey law in Custom–that

                                                       6
administrative relief must be pursued before a debtor may obtain a tax refund under Texas

law.1

        Texas Property Tax Code governs ad valorem taxation for that state. In re El

Tropicano, Inc., 128 B.R. 153, 155 n.2 (Bankr. W.D. Tex. 1991). The tax code identifies a

comprehensive procedural system through which tax appraisals are to be determined and

appealed. Id. Venture failed to request any refund of its 1995 tax payments before it filed

Section 505 motions with the District Court in May 2000. Thus, Venture failed to comply

with the requirements of Texas's Property Tax Code.2 Because Venture's tax refund requests

  1
    New Jersey and Texas state laws provide for similar systems of appraisal and tax
assessment. Namely, refunds are available in both states, but only after the taxpayer goes
through the protest process. Demonstratively, N.J.S.A. § 54:3-21 provides, in part:
        A taxpayer feeling aggrieved by the assessed valuation of his property . . .
        may on or before April 1, or 45 days from the date the bulk mailing of
        notification of assessment is completed in the taxing district, whichever is
        later, appeal to the county board of taxation by filing with it a petition of
        appeal . . . .
Similarly, Texas Property Tax Code §41.41 provides, in part:
        (a) A property owner is entitled to protest before the appraisal review board
        the following actions: (1) determination of the appraised value of the owner's
        property or, in the case of land appraised as provided by Subchapter C, D, or E,
        Chapter 23, determination of its appraised or market value . . . .
And Texas Property Tax Code §41.44 provides, in part:
        (a) Except as provided by Subsections (b) and (c), to be entitled to a hearing
        and determination of a protest, the property owner initiating the protest must
        file a written notice of the protest with the appraisal review board having
        authority to hear the matter protested: (1) before June 1 or not later than the
        30th day after the date that notice was delivered to the property owner . . .
        whichever is later . . . .
  2
    In the alternative, Venture contends that it satisfied § 505's refund request requirement
through informal settlement letters and associated refund requests it made during pre-filing
settlement negotiations. These letters, however, do not conform with Texas state law
                                                                                                (continued...)

                                                     7
were not timely under state law, the District Court correctly found that it was without

jurisdiction to order a refund, and Venture's § 505 motions were properly denied.

                                                    V.

        For these reasons, the judgment of the District Court will be affirmed.




  2
    (...continued)
procedures for requesting a refund, and do not qualify as proper requests for a refund so as
to eliminate the jurisdictional bar under § 505(a)(2)(B).

                                                     8
TO THE CLERK:

            Please file the foregoing opinion.




                                             /s/ Anthony J. Scirica
                                                              Circuit Judge

DATED: November 6, 2002
