Wilshire Courtyard, et al. v. California Franchise Tax Board (In re Wilshire Courtyard)

Summarized by Richard Corbi , Otterbourg P.C.
12 years 5 months ago

Citation:

--F.3d--, 2013 WL 4797288 (Sept. 10, 2013 9th Cir.) (For Publication)

Tag(s):

Ruling:

The Ninth Circuit Court of Appeals held that the bankruptcy court had neither "arising under" nor "arising in" subject matter jurisdiction. The Ninth Circuit Court of Appeals also held, however, that the bankruptcy court had "related to" jurisdiction.

Procedural context:

The Ninth Circuit Court of Appeals REVERSED AND REMANDED the Bankruptcy Appellate Panel.

Facts:

Two commercial buildings, owned by a California general partnership, Wilshire Courtyard (the "Debtor"), filed for chapter 11 bankruptcy after defaulting on more than $350 million in secured debt. The senior secured creditors, the Debtor and individual non-debtor partners of Wilshire Courtyard sponsored a plan of reorganization. Eventually, the Debtor was restructured from a California general partnership to a Delaware limited liability company that continued to own and operate the property while the senior secured creditors took a 99% ownership interestin in the reorganized Debtor with the non-debtor partners taking the remaining 1%. After the plan was confirmed and the case was closed, the various Wilshire partners reported $208 million in aggregate cancellation of debt income on their individual tax returns. The California Franchise Tax Board ("CFTB") sought to assess $13 million in unpaid income taxes on the individual partners, characterizing the transaction in the plan as a disguised sale and the reported cancellation of debt income as capital gains. In 2009, the reorganized Debtor asked the bankruptcy court to reopen the case to protect the confirmed reorganization plan from CFTB's "collateral attack."

Judge(s):

Nelson, Paez, Conlon

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