State of Florida v. Piccadilly--Summary of Decision

The Supreme Court made this case an easy one. As I predicted, the Court reversed the 11th circuit on "plain language of statute" grounds. Indeed, when I saw who wrote the opinion (Justice Thomas), I knew without a doubt that the 11th Circuit had been reversed and that the reason would be because the Circuit Court didn't read the language of the text literally enough. The majority (7-2) held that the exemption Piccadilly received from paying stamp taxes before their bankruptcy proceeding was confirmed by the bankruptcy court flew in the face of the plain language of the law. This essay will do three things: (1) give the text of the law to be interpreted; (2) summarize a few of the relevant facts of the case; and (3) summarize the legal arguments used by Justice Thomas. Since the two dissenters (Stevens and Breyer) echoed the position of the 11th Circuit, which I discussed in my previous essay on the case, there is no need to repeat their argument.

The Statute at Issue

How do you interpret the following?

"(a) 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," 11 USC sec. 1146(a). Note--the section was, at the time the case was filed, known as 11 USC sec. 1146(c)."

All agree that the textual crux in this case is the meaning of the ten words "under a plan confirmed under section 1129 of this title" (i.e., the bankruptcy code). Does it mean that the plan already has to be confirmed at the time of the transfer, or is there more "flex" to the statute, i.e., that the plan can be confirmed sometime in the future but that things are shaping up at the time of the transfer? A "literal," or some might say a "wooden" reading of the statute requires the bankruptcy plan already to be confirmed. That is the way the Court went in this case.

A Few Facts

The relevant facts/procedural history of this case are these:

"After respondent (Piccadilly) declared bankruptcy under Chapter 11, but before its plan was submitted to the Bankruptcy Court, that court authorized Piccadilly to sell its assets, approved its settlement agreement with creditors, and granted it an exemption under 11 U.S.C. § 1146(a), which provides a tax-stamp exemption for any asset transfer “under a plan confirmed under section 1129.” After the sale, Piccadilly filed its Chapter 11 plan, but before the plan could be confirmed, petitioner Florida Department of Revenue (Florida) objected, arguing that the stamp taxes it had assessed on certain of the transferred assets fell outside § 1146(a)'s exemption because the transfer had not been under a confirmed plan. The court granted Piccadilly summary judgment. The Eleventh Circuit affirmed, holding that § 1146(a)'s exemption applies to preconfirmation transfers necessary to the consummation of a confirmed Chapter 11 plan, provided there is some nexus between such transfers and the plan; that § 1146(a)'s text was ambiguous and should be interpreted consistent with the principle that a remedial statute should be construed liberally; and that this interpretation better accounted for the practicalities of Chapter 11 cases because a debtor may need to transfer assets to induce relevant parties to endorse a proposed plan's confirmation."

Legal Analysis

The Supreme Court is in a "show me the statute"-type of mood these days, and if the text is reasonably clear, it will go with that meaning, despite the "reasonability" of another interpretation or result. So, here is how Justice Thomas argued:

"Florida's reading of § 1146(a) [i.e., the literal reading] is the most natural. Contending that the text unambiguously limits stamp-tax exemptions to postconfirmation transfers made under the authority of a confirmed plan, Florida argues that “plan confirmed” denotes a plan confirmed in the past, and that “under” should be read to mean “with the authorization of” or “inferior or subordinate” to its referent, here the confirmed plan, see Ardestani v. INS, 502 U.S. 129, 135, 112 S.Ct. 515, 116 L.Ed.2d 496. Piccadilly counters that the provision does not unambiguously impose a temporal requirement, contending that had Congress intended “plan confirmed” to mean “confirmed plan,” it would have used that language, and that “under” is as easily read to mean “in accordance with.” While both sides present credible interpretations, Florida's is the better one. Congress could have used more precise language and thus removed all ambiguity, but the two readings are not equally plausible. Piccadilly's interpretation places greater strain on the statutory text than Florida's simpler construction. And Piccadilly's emphasis on the distinction between “plan confirmed” and “confirmed plan” is unavailing because § 1146(a) specifies not only that a transfer be “under a plan,” but also that the plan be confirmed pursuant to § 1129. Ultimately this Court need not decide whether § 1146(a) is unambiguous on its face, for, based on the parties' other arguments, any ambiguity must be resolved in Florida's favor."

Thus, the Court didn't recognize an ambiguity in the text of the law. But, if the text were ambiguous, it still wouldn't avail Piccadilly.

"Even on the assumption that § 1146(a)'s text is ambiguous, reading it in context with other relevant Code provisions reveals nothing justifying Piccadilly's claims that had Congress intended § 1146(a) to apply exclusively to postconfirmation transfers, it would have made its intent plain with an express temporal limitation, and that “under” should be construed broadly to mean in “in accordance with.” If statutory context suggests anything, it is that § 1146(a) is inapplicable to preconfirmation transfers. The provision's placement in a subchapter entitled “POSTCONFIRMATION MATTERS” undermines Piccadilly's view that it extends to preconfirmation transfers. Piccadilly's textual and contextual arguments, even if fully accepted, would establish at most that the statutory language is ambiguous, not that the purported ambiguity should be resolved in Piccadilly's favor."

Finally, the Court argued from the "federalism canon" (misspelled "cannon" in the Syllabus of the decision):

"The federalism cannon articulated in California State Bd. of Equalization v. Sierra Summit, Inc., 490 U.S. 844, 851-852, 109 S.Ct. 2228, 104 L.Ed.2d 910-that courts should “proceed carefully when asked to recognize an exemption from state taxation that Congress has not clearly expressed”-obliges the Court to construe § 1146(a)'s exemption narrowly. Piccadilly's interpretation would require the Court to do exactly what the canon counsels against: recognize an exemption that Congress has not clearly expressed, namely, an exemption for preconfirmation transfers. The various substantive canons on which Piccadilly relies for its interpretation-most notably, that a remedial statute should be construed liberally-are inapposite in this case."

Thus, it was narrow construction all the way. That is the mood of the Court these days....

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