By Morton P. Fisher, Jr.
Florida Department of Revenues
vs. Piccadilly Cafeterias, Inc., 128 S.Ct. 2326 (2008)
Bankruptcy lawyers and real estate lawyers with bankruptcy
background know that under Section 1146(a) of the Bankruptcy
Code there is an exemption from stamp taxes and other
recordation charges for a transfer under a plan confirmed under
Chapter 11 of the Code. 11 U.S.C. § 1146(a) (2000).
In many situations, properties are conveyed prior to final
confirmation of a plan which is eventually confirmed.
Piccadilly, a natural cafeteria chain, requested and received
court approval to sell substantially all of its assets and
sought exemption from stamp taxes. In February, 2004, the
Bankruptcy Court approved the proposed sale at auction and ruled
that the transfer of the property was exempt from stamp taxes
under Section 1146(a) [formerly Section 1146(c)] of the
In March, 2004, Piccadilly filed a plan and in July filed an
amended plan. In October, the plan was confirmed but before
final confirmation, Florida filed an objection seeking a
declaration that $39,200 in stamp taxes were not exempt because
the transfer had not been “under a plan confirmed” under the
The Bankruptcy Court reasoned that the sale was a transfer
exempt under the Bankruptcy Code because the sale was necessary
to consummate the plan that was eventually confirmed.
The Eleventh Circuit agreed, holding that the exemption applies
to those pre-confirmation transfers that are necessary to the
consummation of a confirmed plan which at the least requires a
nexus between the pre-confirmation transfer and the confirmed
For those of us who practice in the Third and Fourth Circuits,
it came as no surprise that the Supreme Court granted certiorari
because in those circuits the courts took a contrary view that
for the exemption to apply the plan had to have been confirmed
at the time of the transfer. In re Hechinger Inv. Co. of
Delaware Inc., 335 F3d 243 (3d Cir. 2003) and In re NVR,
LIP 189 F.3rd 442 (4th Cir. 1999).
Piccadilly argued that this exemption imposes no temporal
requirement and that eventual confirmation was sufficient.
Florida argued that the word “under” in “under a plan confirmed”
means under the authorization of a confirmed plan which would
rule out exemption under a plan not yet confirmed and that a
transfer made prior to the date of plan confirmation “cannot be
subject to, or under the authority of something that did not
exist at the time of the transfer -- a confirmed plan.”
Justice Thomas, writing for the majority, and Justice Breyer,
writing for the dissent, agreed on one thing only, namely in the
words of Justice Thomas, “To be sure, Congress could have used
more precise language -- i.e. “under a plan that had been
confirmed” --and thus removed all ambiguity.” Picadilly,
128 S.Ct. at 2332. But as to the meaning, Thomas and Breyer
Under what can be termed the “tie goes to the States” rule,
Thomas involved the “substantive canon” on which the Third
Circuit relied in Hechinger, that courts should “proceed
carefully when asked to recognize as exemptions from state
taxation that Congress has not clearly expressed” and that the
same canon “also discourages federal interference with the
administration of a State’s taxation scheme.” Id. at
Another so called canon relied on was that “Congress is presumed
to be aware of an administration or judicial interpretation of a
statute and to adapt that interpretation when it reenacts a
statute without change.” The current language remains the same
since 1978 despite several revisions to the Bankruptcy Code
including revisions in 2005 after the Third and Fourth Circuits
decision in NVR and Hechinger.
Piccadilly’s argument as to the anomaly that a transfer
essential to a plan that occurs “two minutes before confirmation
may be taxed” was unpersuasive.
But it was Florida’s “federalism canon” that saved the day for
Breyer’s dissenting opinion, although conceding that the
“statutory language is perfectly ambiguous on the point,”
concludes that absence of a clear answer “should not lead to
judicial despair” and he concludes that the “statute’s purpose
is clear on its face” to further Chapter 11’s basis objection of
“persevering going concerns” and “maximizing property available
to satisfy creditors.” Id. at 2340.
But as pointed out by none other than James Moore of Moore’s
Federal Practices fame, “dissents are judicial wastepaper.”
Florida has won again and state’s rights are having their day.
Thus ends the peccadillo over Piccadilly.
Morton P. Fisher, Jr. is currently Senior Counsel in the
Baltimore office of Ballard Spahr Andrews & Ingersoll, LLP